(Bloomberg) -- When Microsoft Corp. launched its $1 billion Climate Innovation Fund three years ago, it was the lone tech giant pledging serious money to tackle rising temperatures. The dangers facing the planet have since become more acute, and the fund has about $400 million left.

The push is on to make the rest of the money count. To juice the power of its remaining spending, the fund’s directors will target areas set to benefit from the $370 billion in climate spending allocated by the Biden administration’s landmark Inflation Reduction Act. 

“The Inflation Reduction Act, even the measures you see out in Europe today, these are great measures to provide policy tailwinds to scale investment and scale investment opportunities,” Melanie Nakagawa, Microsoft’s chief sustainability officer, said in an interview.

Nakagawa joined the company in January from the White House where, as special assistant to President Joe Biden and senior director for climate and energy at the National Security Council, she worked on reversing President Donald Trump’s decision to withdraw the US from the Paris Agreement to limit global warming. “Having come from the policy world, I'm really eager to go where the tailwinds are and the Inflation Reduction Act is one of the most exciting tailwinds we’ve seen as of late.”

Read more: VCs Say US Climate Bill Will Help ‘Prime the Pump’ for Startup Growth

Redmond, Washington-based Microsoft will direct future spending to areas where it’s already active and the IRA is set to get involved, like carbon removal and sustainable aviation fuels. It’ll also align funding with the bill by targeting new areas like green building materials and water, as well as encouraging expansion of renewable energy.

The company is smart to focus on the benefits of the IRA, said Sophie Purdom, an early-stage climate tech investor and co-founder of the Climate Tech VC newsletter. She said the impact of the bill’s climate spending could be double or triple the dollar amount allocated as other investors, customers and companies pile in.

“Everybody, VCs included, likes free money,” she said. And while the law’s passage has made it easy for funds and startups to just slap “IRA” on their pitch decks to bring in money, its impact “is real. And it is probably actually underappreciated.” 

Microsoft announced its fund in January 2020 with a goal of reducing or removing a gigaton of carbon stemming from its own activities by 2050. Amazon.com Inc. followed with a $2 billion program in June of that year and a range of oil and gas, utility and mining companies have also set up venture capital arms targeting climate projects. Microsoft began by investing in other climate funds in order to gain expertise, but now focuses on direct stakes based on four criteria: meaningful impact, equity, or making sure developing economies benefit, tech that’s relevant for Microsoft’s products and customers and underfunded markets.

One key part of its funding strategy has been to leverage its money and backing to bring in other investors.

“We are very clear-eyed, this is a $50 trillion problem and we have a $1 billion fund,” Brandon Middaugh, director of Microsoft’s fund, said in an interview. “So the work that we do to mobilize others is the most important impact.”

This paid off for Generation Investment Management, the investment firm co-founded by former US vice president and climate activist Al Gore. In 2021 it was preparing to launch Just Climate, a fund to target decarbonization technology. Microsoft signed up as an initial investor and agreed to make introductions and recommendations to others. This pledge helped bring in commitments worth more than 10 times Microsoft’s initial outlay, said Joel Combs, who oversees funding related to climate and affordable housing as Microsoft’s director of impact investments. A Microsoft spokesperson declined to detail the size of each of the fund’s investments. A spokesperson for Just Climate declined to comment or provide details on the fund.

Microsoft also looks to support technology it can use to achieve its own carbon negative goals. 

Twelve, a California company that converts electrified CO2 into jet fuel that the company says it has up to 90% lower emissions over the lifecycle of the product than conventional fuel, has received support from Microsoft beyond a financial investment. In July the two companies and Alaska Airlines, the Seattle-based carrier Microsoft uses for business travel, announced a collaboration to develop the market for Twelve’s product, including a push for a commercial demonstration flight. By using the fuel on its Alaska Air travel, Microsoft reduces its own carbon emissions, and becomes eligible for sustainable aviation tax credits. 

“Absent the Microsoft backing, the deal might not have played out like this, certainly not with this speed and the ambition of the project,” said Nicholas Flanders, Twelve’s CEO and co-founder. “Speed and scale is really what was enabled by the Microsoft partnership.”

The strategy is also reflected in a January investment in Boston Metal, which uses a process developed at the Massachusetts Institute of Technology to power steel production with renewable electricity rather than coal. As Microsoft builds more offices, products and data centers, meeting its environmental goals means cutting embodied carbon — the emissions related to the manufacture and transport of building materials. In the built environment, embodied carbon accounts for 13% of global emissions.

For “steel and concrete, the embodied carbon represents a meaningful percent of global emissions,” Middaugh said. “They also represent a pretty meaningful percent of our own emissions footprint, and one that we haven't really addressed.”

Microsoft expects to run through the remainder of the fund some time next year. She declined to say whether the company will raise a second climate fund.

The challenge for Microsoft and its peers in climate investing is achieving enough change with enough speed, said Nagakawa. The latest report from the UN’s Intergovernmental Panel on Climate Change, which highlighted that the world is rapidly losing the chance of avoiding the most severe impacts of rising temperatures, will only increase the time pressure. 

“I really want to make sure that these the investments can move out as fast as they need to go, that we can accelerate the technology adoption as quickly as we can, and that the milestones are hitting the timeline we need,” she said. “The urgency is just ever more clear.”

©2023 Bloomberg L.P.