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Microsoft Unveils Strategy to Tackle 30% Increase in Scope 3 Emissions Since 2020

As demand for new data centers surges, Microsoft's carbon footprint has expanded, leading to a 29.1% spike in its greenhouse gas emissions since 2020. The company has implemented over 80 strategies to mitigate this increase.

While Microsoft has reduced its direct emissions (Scope 1 and 2), which involve its own operations and energy use, by 6.3% from the 2020 baseline, it faces a challenging rise in Scope 3 emissions. These indirect emissions, from customer usage and the broader supply chain, have surged by 30.9% over the same timeframe.

In fiscal year 2023, the company's overall emissions grew by 3.8% year-over-year, marking the third consecutive annual increase since setting a bold ambition in 2020 to achieve a "carbon negative" status by 2030. This target involves negating the impact of Microsoft's carbon dioxide emissions, water use, waste generation, and land use by the decade's end.

For the fiscal period ending June 30, 2023, Microsoft reported total emissions of 17,162,000 metric tons of carbon dioxide equivalent, an increase from 16,538,000 metric tons recorded in the previous fiscal year. Notably, this year's increase originated from Scope 3 emissions, as detailed in Microsoft's FY2023 environmental sustainability report released on May 15.

"Our challenges are in part unique to our position as a leading cloud provider that is expanding its data centres," 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."

Meanwhile, Microsoft's competitors, Amazon and Google, are poised to release their environmental progress reports in July. Both companies have recently updated their reporting methodologies, complicating direct comparisons with previous data. However, like Microsoft, they attribute the escalating challenges in meeting energy, waste, and water sustainability targets to the rapid expansion of data center construction. This growth is primarily driven by soaring demand for artificial intelligence services.

With its revised methodology, Google noted that it would have reported no change in its Scope 3 emissions for the fiscal year 2022 if not for these adjustments. Similarly, Amazon reported a modest decrease of 0.7% in its Scope 3 emissions, attributing this improvement to enhanced efficiency in reducing construction activity emissions.

To combat the rising emission trend, Microsoft has initiated a comprehensive company-wide effort, as outlined by Nakagawa. This broad strategy encompasses over 80 distinct and impactful measures. One significant shift includes mandating "high volume" suppliers—those with which Microsoft frequently conducts business—to transition to carbon-free energy by 2030. This updates their previous requirement, which demanded that these suppliers cut their absolute emissions by at least 55% within the same timeframe.

In the summer of 2023, Microsoft also tightened its requirements for emissions disclosures by certain suppliers, a move similar to Amazon's. Additionally, emissions data now play a critical role in Microsoft's procurement decisions. Division heads within the company are subject to an internal fee based on emissions, including those of their suppliers. Nakagawa emphasized that informed, lower-carbon decisions by these leaders would mitigate the financial impact of these fees annually.

The array of initiatives is organized under five key priorities established by the Microsoft Climate Council, chaired by Smith and including Nakagawa and other company business leaders. 

These priorities are:

  • Leveraging Technology: Utilizing digital tools, including AI, to optimize energy and water management. For instance, Microsoft's investment in LineVision enhances electric grid capacity.

  • Water Efficiency in Data Centers: Enhancing water usage efficiency, such as the new data centre in Wisconsin, which utilizes a closed-loop, water recycling system that seldom requires fresh water.

  • Innovative Partnerships: Collaborating on sustainable solutions, like the September 2023 partnership with RMI to develop a supply of green steel.

  • Strategic Purchasing: Using purchasing power to acquire lower-carbon materials and technologies, such as investing in LanzaJet for sustainable aviation fuel.

  • Advocacy for Policy Change: Engaging in advocacy for environmental policy, exemplified by joining the Coalition for Water Recycling in 2023.

On the carbon removal front, Microsoft is significantly increasing its investments. In fiscal 2023, the company secured contracts for over five million metric tons of carbon removal credits from future projects. This includes a 15-year agreement with Chestnut Carbon for a U.S.-based reforestation project, marking a fivefold increase over the previous fiscal year's carbon offset purchases. In early May, Microsoft signed its largest carbon removal deal with Stockholm Exergi, covering 3.33 million metric tons of carbon removal over ten years starting in 2028.

For fiscal year 2023, Microsoft retired carbon offsets equivalent to about 605,000 metric tons of CO2, enabling the company to maintain its claim of carbon neutrality.


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