Microsoft launches initiative to counter 30% rise in Scope 3 emissions since 2020

The company’s carbon footprint is growing because of demand for its new data centers.

Microsoft has adopted more than 80 measures to counteract a 29.1 percent increase in its greenhouse gas emissions since 2020, predominantly driven by its new data centers.

The company‘s Scope 1 and 2 emissions — those closely tied to the company’s operations, manufacturing and use of power — have decreased 6.3 percent since the 2020 baseline. However, its Scope 3 output (indirect emissions from customer purchases and other supply chain categories) climbed 30.9 percent in the same period.

The company’s emissions rose 3.8 percent year-over-year in fiscal year 2023. It was the third consecutive increase since the world’s largest software company announced a 2020 goal to become “carbon negative” by 2030, Microsoft disclosed May 15 in its FY2023 environmental sustainability report. That goal commits Microsoft to canceling out the effect of its carbon dioxide, water consumption, waste production and land use by the end of the decade.

For the year ended June 30, 2023, Microsoft reported 17,162,000 metric tons of carbon dioxide equivalent emitted, compared with 16,538,000 in fiscal year 2022. As was the case for the past three years, all of that increase came from Scope 3.

The weight of concrete, steel and IT equipment

Microsoft executives attribute the increase primarily to its new data centers.

“Our challenges are in part unique to our position as a leading cloud provider that is expanding its data centers,” said Microsoft President and Vice Chair Brad Smith and Microsoft CSO Melanie Nakagawa, in the foreword to its environmental report, published May 15. “But even more, we reflect the challenges the world must overcome to develop and use greener concrete, steel, fuels and chips. These are the biggest drivers of our Scope 3 challenges.”

Microsoft rivals Amazon and Google aren’t due to publish their next environmental progress reports until July. Both made methodology updates that affected their last reports that make exact comparisons difficult, but they also have pointed to data center construction — accelerated by demand for artificial intelligence services — as a growing challenge to energy, waste and water goals. Google would have reported no change in Scope 3 emissions for fiscal year 2022 in the absence of its methodology change. Amazon reported a 0.7 percent decrease for Scope 3, citing its ability to reduce construction emissions.

Microsoft’s Scope 3 accounts for about 96 percent of its total emissions. Of that, three-quarters are related to purchased goods, Nakagawa told GreenBiz in an interview. “I think it’s important to highlight, we are very aware of what our challenges and opportunities are,” she said. “We’ve started to put in place initiatives and efforts to get our hands around the size of the challenge we have before us, and what the opportunities are to turn that emissions curve down across our suppliers and value chain.”

The company launched a company-wide initiative to reverse that trend, Nakagawa said. That strategy includes more than 80 “discrete and significant measures,” including a new requirement that requires “high volume” suppliers — those with which it most frequently does business — to use carbon-free energy by 2030. It previously required them to reduce absolute emissions a minimum of 55 percent by that timeframe.

Microsoft adopted stricter emissions disclosures by certain suppliers in the summer of 2023. (Amazon is embracing similar measures.) Emissions data is also part of Microsoft’s procurement criteria — division heads are charged an internal fee for emissions, including those of their suppliers. “The more that they can make informed decisions that are lower-carbon, the better off they will be in terms of the fee impact they’ll see on an annual basis,” Nakagawa said.

The 80 initiatives are spread across five priorities set by the Microsoft Climate Council. The group is chaired by Smith and includes Nakagawa and business leaders from across the company. The priorities are:

• Use digital technology, including artificial intelligence, to gather insights and automate the management of electricity and water consumption. For example, Microsoft is an investor in LineVision, which makes software that helps free up electric grid capacity.
• Increase the efficiency of data centers’ use of water. The company’s massive new data center in Wisconsin, for example, will be cooled with a closed-loop, water recycling system that uses new water only in rare circumstances.
• Innovate through partnerships, such as its September 2023 alliance with RMI, to develop a supply of green steel.
• Use its purchasing power for new solutions, including lower-carbon computer servers, steel, electricity and concrete. In April, for example, Microsoft put more money into LanzaJet, which makes sustainable aviation fuel, through its $1 billion Climate Innovation Fund.
• Advocate for public policy changes, illustrated by a 2023 decision to join the Coalition for Water Recycling.

Banking on carbon removal

Microsoft is also making big investments in emerging approaches for carbon removal. In fiscal year 2023, it signed contracts for more than 5 million metric tons of credits related to future projects, including a 15-year-deal with Chestnut Carbon for a U.S.-based reforestation project.

That’s more than five times the carbon removal offsets Microsoft bought in fiscal year 2022. It could match that amount during the current fiscal year: Microsoft signed its largest carbon removal deal to date in early May with Stockholm Exergi. It covers 3.33 million metric tons of carbon removal for 10 years starting in 2028.

For accounting purposes, carbon offsets are retired as they are generated. For fiscal 2023, Microsoft retired offsets related to about 605,000 metric tons of CO2 equivalent, which enables the company to claim it is carbon neutral.