"MICROSOFT HAS A DUE DILIGENCE PROBLEM"

WHAT?
On July 1, 2025, 59 Microsoft shareholders, collectively representing more than $80 million in MSFT shares, filed a shareholder proposal calling on Microsoft to publish a report assessing the effectiveness of its Human Rights Due Diligence (HRDD) processes. It requests that Microsoft evaluate whether its AI and cloud technologies are being misused by customers, such as military entities, to commit human rights abuses or violations of international humanitarian law.

WHY?
On September 25, 2025, The Guardian reported that Microsoft had restricted Israeli military use of certain technologies after journalistic investigations revealed they had been employed in mass surveillance of Palestinians. This followed an earlier Company review, which purportedly found its Azure and AI technologies had not been used in ways that breached Microsoft’s terms of service or AI Code of Conduct. The decision to act only after persistent media reporting and employee and public outcry illustrates that Microsoft’s HRDD processes did not identify or address significant human rights risks, revealing gaps in oversight and review.

This isn’t an isolated case. There is a pattern of allegations about Microsoft’s complicity in human rights violations in China, Saudi Arabia, and the USA. This suggests systemic issues with Microsoft’s HRDD practices.

In 2023, Foley Hoag conducted a Human Rights Impact Assessment which recommended that Microsoft assess its military contracts. There has been no public confirmation that Microsoft has done this.

These gaps in oversight and review of its due diligence processes pose material risks for investors:

• Financial Risk: Potential loss of revenue or increased cost of capital, potential portfolio impacts for investors due to S&P 500 weighting.
  
• Legal and Regulatory Risk: Potential financial liability for the Company under EU laws; potential criminal liability for the Company and its executives for complicity in human rights violations.
  
• Operational Risk: Controversy impacts key talent recruitment and retention; distracts senior management from core business.
  
• Reputational Risks: Microsoft named by UN Special Rapporteur as profiting from, and therefore complicit in, war crimes and genocide in Gaza. Risk of eroding public and customer trust.
  

CONCLUSION
Microsoft acknowledges that client category and geographic location impact likelihood of product misuse and human rights impacts. Yet it has not demonstrably, consistently translated this awareness into systematic, heightened HRDD. A stream of accusations and the Company’s recent decision to cancel one of its contracts with the Israeli military strongly suggest that Microsoft’s current, largely reactive measures to allegations of human rights abuses by customers are inadequate.

Without a comprehensive, systematic approach to due diligence, shareholders remain exposed to significant material, financial, legal & regulatory, operational, and reputational risks. Supporting the 2025 shareholder resolution is therefore prudent.