Microsoft plans to address Scope 3 emission surge

New strategy encompasses more than 80 significant measures

Microsoft has introduced a new initiative to tackle a spike in its greenhouse gas emissions since 2020, largely driven by the expansion of its datacentres.

While the company's Scope 1 and 2 emissions - direct emissions from operations and power consumption - have fallen 6.3% since the 2020 baseline, its Scope 3 emissions (indirect emissions from the supply chain and customer purchases) have climbed 30.9% during the same period, according to its latest Environmental Sustainability Report.

Emission rises year-on-year

In fiscal year 2023, Microsoft's total emissions increased 3.8% year-over-year - the third consecutive annual rise since the company's 2020 pledge to become ‘carbon negative' by 2030. This goal includes offsetting all carbon dioxide emissions, water use, waste production and land use by the end of the decade.

Microsoft reported 17,162,000 metric tons of CO2 equivalent emissions for the year ending 30th June 2023, up from 16,538,000 in fiscal year 2022, with the entire increase attributed to Scope 3 emissions.

The surge in emissions is primarily due to the construction of new datacentres, Microsoft said. President and vice chair Brad Smith, along with CSO Melanie Nakagawa, noted in the report's foreword: "Our challenges are partly unique to our role as a leading cloud provider expanding its datacentres. More broadly, we reflect the global challenge of developing and using greener concrete, steel, fuels and chips, key drivers of our Scope 3 emissions."

Challenges of managing emissions for tech companies

Microsoft's competitors, Amazon and Google, have also highlighted the challenge of managing emissions associated with datacentre construction, particularly with the rising demand for AI services. Amazon reported a slight 0.7% decrease in Scope 3 emissions, while Google's methodological adjustments meant it would have reported no change for fiscal year 2022

Microsoft's scope 3 emissions

Scope 3 emissions account for approximately 96% of Microsoft's total emissions, with three-quarters linked to purchased goods. To reverse this trend, the company's new strategy encompasses over 80 significant measures. One key requirement mandates ‘high volume' suppliers to utilise carbon-free energy by 2030. Previously, these suppliers were required to reduce absolute emissions by at least 55% within the same timeframe

Since the summer of 2023, Microsoft says it has enforced stricter emissions disclosures for certain suppliers, aligning with similar measures adopted by Amazon. Emissions data now influence Microsoft's procurement criteria, with division heads incurring internal fees based on their emissions, including those of their suppliers.

Additionally, Microsoft is significantly investing in carbon removal technologies. In fiscal year 2023, it signed contracts for over five million metric tons of carbon removal credits, including a 15-year deal with Chestnut Carbon for a US-based reforestation project. This is a substantial increase from the carbon removal offsets purchased in fiscal year 2022.

The company also recently signed its largest carbon removal deal to date, with Stockholm Exergi, covering 3.33 million metric tons of carbon removal over 10 years starting in 2028.