At work, we’re building some open source software to make it possible to parse corporate disclosures that a growing number of companies need to publish for the world to see. These are largely being driven by new laws passed around the world about corporate transparency, and I’m sharing a question here that I’d like some pointers on, because I think it’s important. I’m not a lawyer, but maybe someone who sees this either is one, or knows one, or someone else who can shed some light. I list how to contact me at the bottom of the post.
First, some context – why I am asking this, and the CSRD
I spoke about disclosure laws before, and one of the big laws I’m referring to in Europe for disclosure is the CSRD – The Corporate Sustainability Reporting Directive. We’re working on a project where I work, the Green Web Foundation called carbon.txt. One of the goals there is to make these reports easy to discover, by establishing a convention about where on a given domain or website to look for them.
This is a bit like how search engines know which pages to crawl because robots.txt is a thing, and responsible cybersecurity disclosure is faciliated by the existence of security.txt. In any domain in the world, visiting say… example.com/carbon.txt would provide an index linking to the all the relevant disclosed information you can use to independently verify green claims by a given organisation.
So, one thing we’re doing on the project is reading through the ESRS (European
Sustainability Reporting Standards) – a set of reporting standards, that are designed to be broadly compatible with international sustainability reporting standards in other parts of the world, like the ISSB (International Sustainability Standards Board).
(As an aside, if you’re curious, here’s an interop document describing how the ESRS and the ISSB related to each other.)
What are we looking at the CSRD for?
Anyway, for our work, we’re focussing only on a subset datapoints listed in the CSRD mainly about green energy.
To make this visual, we’re looking at this bit of the ESRS – there are many more that cover a range of different ESG-related considerations:
This issue on github gives an idea of how the kinds of datapoints we’re looking at right now in much more detail, the key things to take away here:
- there are many other datapoints in the other parts of the ESRS (each of the boxes is a standard containing other datapoints)
- we’re building open source software to make it easy to discover and parse reports like this so they can be queried too
So while we might be looking mainly at ESRS E1 – Climate change, you, or other actors might be interested in the other boxes like say… ESRS E5 Resources and Circular Economy, and so on.
Long term, we want to make it possible for anyone to query any published CSRD report, anywhere online, for any of these datapoints.
Where oil and gas sector reporting comes into this
Along the way, I’ve ended up getting familiar with these published standards, which are helpfully online and linked at on a website published by EFRAG, the European advisory body for people trying to figure out how to report for the CSRD.
As part of the work of building a parser, we need some unambigious identifiers for various datapoints that need to be reported.
It turns out that EFRAG have been helpful here too. They have published a mapping between identifiers in the software we’re using to help parse the format that these CSRDS reports will be published in (if you’re curious we’re using Arelle under the hood), and the specific parts of the standardised data in the ESRS that CSRD says need to be disclosed.
I’ve put the mapping spreadsheet online as a Google spreadsheet, to help give an idea what kind data this includes.
Revenue from the fossil fuels as a datapoint
I’ve also attached a screenshot below of a datapoint that caught my eye when reading:
You might need to click on the image to see the highlighted cell D199 – esrs:RevenueFromFossilFuelCoalOilAndGasSector. Next to it is the more readable label, saying “Revenue from fossil fuel (coal, oil and gas) sector”.
Straight away, if you care about climate change, this is somewhat interesting.
What’s also interesting is what follows about the conditions for reporting. Check cell K199.
It looks like this cell contains information about where this is a mandatory reporting requirement or not for the CSRD.
There’s this bit:
MandatoryDatapoint: Mandatory irrespective of MA
MA in this context means Materiality Analysis. In Europe, companies when deciding to report against the CSRD need to check if a particular issue is relevant to:
- their impact on the surrounding environment
- the value of the company
If it is, then it’s classed as material, and it needs to go in.
Yes, this is a massive oversimplification – this short video briefing I recorded on materiality might be helpful – and was one of the by-products of our earlier research on carbon.txt.
Why would tech companies need to report their work with the oil and gas sector?
You might be wondering – if you were a tech company, why would enabling oil and gas extraction with specialised AI services count as material?
For that, let’s look to a chart coming from the folks at the Enabled Emissions campaign – former Microsoft Employees, who quit over the company’s continued work with fossil fuels, who saw the work the company was doing first hand.
That red bar in the chart is showing two announced deals between Microsoft and massive oil firms (oil supermajors like Exxon or Chevron).
The smaller paler bars are the reported organisational emissions of each company for that year. They’re dwarfed by the work it’s doing.
You can follow the working for that chart in more detail if you fancy, in this jupyter notebook. I put that notebook together a few years back, and it’s an open source thing – if you can improve it, please do.
Anyway, the key point is that this chart is showing the impacts of just two contracts, and Microsoft has definitely worked on other contracts since.
So, I think you could make a fairly pursuasive case that Microsoft’s work using AI to help companies extract more fossil fuels would count under the double materiality rules in the CSRD.
But if that spreadsheet guidance is anything to go buy, whether something is material is doesn’t matter in this case – it looks like companies have to report it either way.
What would they actually need to report though?
If we look to that ESRS website, we can see the corresponding guidance that tells us what needs to be included. For convenience, I’ve pasted below the datapoint and the surrounding context. I’ve highlighted the some bits in bold for emphasis:
Disclosure Requirement SBM-1 – Strategy, business model and value chain
38. The undertaking shall disclose the elements of its strategy that relate to or impact sustainability matters, its business model and its value chain.
39. The objective of this Disclosure Requirement is to describe the key elements of the undertaking’s general strategy that relate to or affect sustainability matters , and the key elements of the undertaking’s business model and value chain , in order to provide an understanding of its exposure to impacts, risks and opportunities and where they originate.
40. The undertaking shall disclose the following information about the key elements of its general strategy that relate to or affect sustainability matters :
– (a) a description of:
– i. significant groups of products and/or services offered, including changes in the reporting period (new/removed products and/or services);
– ii. significant markets and/or customer groups served, including changes in the reporting period (new/removed markets and/or customer groups);
– iii. headcount of employees by geographical areas; and
– iv. where applicable and material, products and services that are banned in certain markets;
– (b) a breakdown of total revenue, as included in its financial statements, by significant ESRS sectors. When the undertaking provides segment reporting as required by IFRS 8 Operating segments in its financial statements, this sector revenue information shall be, as far as possible, reconciled with IFRS 8 information;
– (c) a list of the additional significant ESRS sectors beyond the ones reflected under paragraph 40(b), such as activities that give rise to intercompany revenues, in which the undertaking develops significant activities, or in which it is or may be connected to material impacts. The identification of these additional ESRS sectors shall be consistent with the way they have been considered by the undertaking when performing its materiality assessment and with the way it discloses material sector-specific information;
– (d) where applicable, a statement indicating, together with the related revenues, that the undertaking is active in:
– i. the fossil fuel (coal, oil and gas) sector ( 16 ) , (i.e., it derives revenues from exploration, mining, extraction, production, processing, storage, refining or distribution, including transportation, storage and trade, of fossil fuels as defined in Article 2, point (62), of Regulation (EU) 2018/1999 of the European Parliament and the Council ( 17 ) ), including a disaggregation of revenues derived from coal, from oil and from gas, as well as the revenues derived from Taxonomy-aligned economic activities related to fossil gas as required under Article 8(7)(a) of Commission Delegated Regulation 2021/2178 ( 18 ) ;
– ii. chemicals production ( 19 ) , i.e., its activities fall under Division 20.2 of Annex I to Regulation (EC) No 1893/2006;
– iii. controversial weapons ( 20 ) (anti-personnel mines, cluster munitions, chemical weapons and biological weapons); and/or
– iv. the cultivation and production of tobacco ( 21 ) ;
– (e) its sustainability-related goals in terms of significant groups of products and services, customer categories, geographical areas and relationships with stakeholders ;
– (f) an assessment of its current significant products and/or services, and significant markets and customer groups, in relation to its sustainability-related goals; and
– (g) the elements of the undertaking’s strategy that relate to or impact sustainability matters, including the main challenges ahead, critical solutions or projects to be put in place, when relevant for sustainability reporting.
My reading of this, makes me think that:
- yes, tech companies probably will need to report the revenue from the oil and gas sector if they are covered by the CSRD
- they would need to report this revenue from the oil and ga sector in absolute monetary terms (i.e. millions of USD)
- they would probably need to report the other revenue for other ESRS sectors too (though I’m less clear about what)
Microsoft is a publicly traded company, and millions of people own shares in it – their pensions rely on it, and so on.
In fact, one group with shares that is affected are employees at Microsoft, and they’ve been asking for something similar themselves – they even reportedly got an agreement from Microsoft management too to do this.
Here’s a choice quote from a story in Grist from a few months back – here the Willis being referred to is Darryl Willis, Microsoft’s corporate vice president of energy:
On the call, Willis committed to providing employees with updates on net-zero requirements as Microsoft continued to implement the principles. He also committed to providing a breakdown of the energy division’s revenue across six different sectors, from oil and gas extraction to low- or zero-carbon energy, as well as an analysis of personnel resources assigned to extractive industries versus renewable energy. Finally, Willis agreed to share a plan for how Microsoft’s energy division would transition its revenue toward low-carbon energy.
Did it ever materialise?
While I don’t work at Microsoft, so I can’t be sure, the rest of that piece suggests very strongly that nope, it never came.
However, you can point of the existence of a shareholder resolution being brought to the Microsoft Annual shareholders meeting in December 2024, explicitly asking for a report on the use of AI for oil and gas extraction as evidence that suggests that this information is not being shared.
Go to page 82 in the filing document published for shareholder meeting and you’ll see:
Proposal 7: Report on Artificial Intelligence and Machine Learning Tools for Oil and Gas Development and Production (Shareholder Proposal)
On the next page you’ll see a bunch of text from Microsoft essentially saying “nothing to see here, move on“.
There’s also a 3 minute video rebuttal of every single point made by Microsoft management, shared at the meeting. Will Alpine the former Microsoft employee was nice enough to upload it somewhere public (that is also handy not owned by Microsoft too). I’ve included it below:
This vote didn’t pass, so for the time being the only people who know how active Microsoft is in the oil and gas sector are their customers there, not the most of the employees in the company, or the people who hold shares in the company, or the people who use its products.
Summary – falling back to the CSRD, because voluntary action is not working
We’ve seen that companies like Microsoft or Amazon are very happy to talk about sustainability wins when it suits them, but once you ask more substantive questions about their actions on climate, it becomes much harder to get an accurate picture of what’s going on.
I don’t have high hopes for the company voluntarily giving an honest account of its activity using AI to accellerate oil and gas production, which is where laws like the CSRD do come in, where it’s seems to be spelled out pretty clearly what is required.
The CSRD laws are not primarily aimed at civil society or activists – from what I understand the primary goal of the CSRD when it was formulated was to give investors a fuller understanding of the risks and consequences of investing in various companies.
However, this looks like a case where the interests of activists and employees ought to align with those of thoughtful investors.
When would Microsoft have to publish this?
As I understand it, Microsoft would be covered by the scope of the CSRD, and the first year of publishing for companies of its size would be this year, 2025, for activity in 2024.
The CSRD disclosures should be disclosed along with the annual management reports, and if Microsoft has its annual shareholder meeting in December, that would be when I expect it to be published.
So, assuming the Microsoft follows the spirit of the law, then come December December 2025, we should have a nice datapoint, listing for the financial year of 2024, just how much Microsoft received as revenue from the oil and gas sector, in millions of dollars, that should be in the public, and accessible with a single API request.
Having this number here allows us to have much more data informed discussion about the role tech firms play in accellerations oil and gas, and it’ll help as a useful piece of information in discussions, when people look at Microsoft’s record as an ESG leader.
A request for help
I would really, really welcome some pointers from people with deeper expertise on disclosure than me, about how laws like the CSRD can bring about a level of disclosure in the tech sector on it’s involvement with the oil and gas sector.
Reporting on this would seem to follow the spirit of the law in Europe, and the ESRS standards seem fairly clear cut.
Also, given that Microsoft is very much seen as a prize ESG stock, I figure there would be investors who want to know this, if only to understand their exposure to the oil and gas sector.
I list the best ways to reach me on my about page.
Don’t be shy!
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