M365 Academy: The Power of Sensitivity Labels in Microsoft 365

Summary: Read takeaways from our recent M365 Academy webinar on sensitivity labels, which covered how labels support governance across M365, from taxonomy design and classification to Copilot oversight, DLP, Insider Risk, and eDiscovery. Discover how to strengthen your own information protection strategy with these critical insights. Note: The information provided is based on available features as of the date of publication and is subject to change.

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Sensitivity labels cover the entire Microsoft 365 ecosystem, including Outlook, Teams, SharePoint, and OneDrive. They signal how information should be handled, enforce protections, and guide user behavior. In our recent M365 Academy webinar, M365 experts Marta Pucci and Noah Koerner shared practical guidance on building and sustaining a labeling program that supports Copilot adoption, strengthens compliance, and provides assurance in eDiscovery scenarios.
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Purpose and scope of labels

Sensitivity labels are metadata tags that indicate the classification of information in emails, meeting notes, files, and containers (e.g., SharePoint sites, Teams, M365 Groups). They help you effectively govern information, reduce risk, and demonstrate compliance. You can apply visible content markers in the headers, footers, or watermarks to indicate access controls that enforce who can open, view, edit, print, or forward the document. Access controls are only enforced once you enable them. And, once they are activated, the protection travels with the item as it moves within and outside your organization.
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Protection controls in practice

One of the primary uses of labels is to apply and enforce access controls (formerly called encryption), which provide granular control over how content can be used. You can assign roles, such as viewer, editor, or co-owner, set expiration periods that require re-authentication, or block actions such as copy/paste, screen capture, or printing. Purview provides built-in options for emails that match common restrictions: Do Not Forward and Encrypt-Only. You can target (scope) controls to required authentication for external collaboration or to limit internal access by department. These label features safeguard information and enforce your organization’s policies.
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Design and implement your taxonomy

Collaboration across departments is key to designing an effective taxonomy. We most commonly see stakeholders from legal, compliance, security, and IT involved in these discussions. Labels should use easily understandable names and can be organized into groups or include subgroups to tailor access and usage for more specific use cases. Publishing policies determine which users see which labels, simplifying the choices for users. For instance, a “highly sensitive” label might only appear in the list for HR personnel.

Adoption is key to an effective labeling program, so easily identifiable cues are important. Content markers in headers, footers, or watermarks, and features like color coding or a lock icon, help users recognize sensitivity. Restrictions also support adoption; you can require a label before saving or prompt users to justify sensitively level downgrades. A taxonomy that reflects how your organization actually categorizes and handles data, along with practical adoption measures, ensures that your labeling program delivers compliance.
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Classification and automation

Labels are based on classifications that define the types of data your organization wants to identify and protect. Microsoft Purview provides several ways to detect that data: Sensitive Information Types (SITs) recognize common patterns such as credit card or Social Security numbers, Trainable Classifiers use machine learning to recognize categories of documents (e.g., legal or financial), and Exact Data Match (EDM) pinpoints specific values in structured data. Once records are categorized, labels can be applied manually or automatically. Client-side auto-labeling works while users are creating or editing content, either suggesting a label or applying it directly, while service-side labels apply to data at rest in SharePoint or OneDrive and to email in transit through Exchange. When a record fits into more than one category, label priorities ensure that the most restrictive label is applied, reducing ambiguity and strengthening protection. A well-designed classification and automation strategy ensures that sensitive data is labeled accurately and consistently, without relying solely on user judgment.
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Copilot governance

Oversharing is one of the most common obstacles to M365 Copilot adoption. Copilot accesses information from across the enterprise, which means sensitive content may appear in responses if it is not properly governed. Sensitivity labels play a critical role here: By applying access controls, you can prevent Copilot from processing or exposing labeled data to unintended audiences. For example, content marked as “highly confidential” can be excluded from Copilot results altogether, or restricted so that only users with specific permissions can see it. Data Loss Prevention (DLP) policies extend this protection by blocking Copilot from drawing on content that meets certain sensitivity thresholds. Together, these controls allow your organization to take advantage of Copilot’s productivity benefits while minimizing the risk of accidentally exposing sensitive information.
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DLP and Insider Risk

Data Loss Prevention (DLP) policies help prevent sensitive information from leaving the organization through email, chat, or sharing. As noted above, they also govern Copilot by limiting oversharing. Insider Risk Management addresses a different but complementary challenge: risky behavior inside the organization. It can highlight patterns such as repeated label downgrades, attempts to bypass restrictions, or unusual spikes in data movement. Together, DLP and Insider Risk provide a dual layer of protection—blocking inappropriate sharing at the source and alerting you to behaviors that may signal intentional or unintentional misuse.
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Measure and iterate

Effective labeling is not a one-time setup; it requires continuous evaluation. There are several tools within Purview to monitor how labels are being used across your enterprise. Information Protection reports show which and where labels are applied most often, offering a high-level view of adoption. Data and Content Explorer drills into specific items to confirm that sensitive content is being labeled correctly. For more recent activity, Activity Explorer provides up to 30 days of detail on user actions, including label changes and downgrade justifications. These insights help you identify trends, spot misuse, and refine your labeling strategy over time to keep pace with evolving business and regulatory needs.
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eDiscovery and downstream impact

Sensitivity labels don’t just affect how data is used day to day, they also influence how it behaves in downstream processes like eDiscovery and regulatory investigations. Label metadata typically persists when items are converted into formats like CSV or PDF. However, this practice can cause defensibility issues in eDiscovery. In some cases, you might choose to use DLP controls to manage information. Understanding how labels behave during export and planning accordingly ensures that your compliance and legal teams can rely on the data set.
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Moving forward

Sensitivity labels are most effective when treated as part of a broader governance strategy rather than a standalone tool. Labels connect policy with practice across M365. They apply protections, support Copilot adoption, and integrate with DLP, Insider Risk, and eDiscovery. Their program’s success depends on thoughtful design that reflects how your organization handles data, the right controls to enforce policy, and ongoing monitoring so usage evolves with business and regulatory demands. Implemented thoughtfully, sensitivity labels provide both the guardrails and the assurance needed to protect information and support compliance at scale.

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