Global technology leaders including Alphabet, Amazon, Apple, Meta, and Microsoft are increasingly integrating artificial intelligence (AI) technologies into their product offerings. The substantial energy consumption associated with AI training and operation has raised concerns about the environmental impact, particularly regarding GHG emissions[1]. Should investors demand these companies disclose their energy consumption to calculate Scope 3 GHG Emissions?
From a sustainable investor’s perspective, the carbon emissions of a company can have implications on its discount factor (i.e., cost of capital). Companies with higher emissions may face increased regulatory scrutiny, potential carbon taxes, and reputational risks, all of which could increase their Weighted Average Cost of Capital (WACC). On the other hand, companies which have made long-term commitments, for example to clean energy, might enjoy a lower discount rate due to lower environmental risks.
Carbon footprint is a measure of the total amount of carbon emissions that is directly and indirectly created by an activity or over the life of a product[2]. Carbon footprint could also be used by investors as a proxy for the sustainability of companies’ operations. Companies with efficient energy use may signal to investors that they are more resilient to energy price fluctuations and regulatory changes, as well as the feasibility of success in achieving Net-Zero pledges.
For the technology leaders whose energy consumption has very significantly increased due to AI operations and yet whose reported carbon footprint may not seem as greatly increased, investors might question the integrity of the company’s overall carbon neutrality[3].
Big Tech Investment in Private AI Companies
Microsoft’s AI efforts have historically been somewhat fragmented, compared to the more focused strategies of competitors like Alphabet and Amazon. By investing heavily in OpenAI (~$10B), Microsoft aimed to catch up and potentially surpass its competitors[4]. OpenAI’s models, integrated into Microsoft’s Azure cloud platform, have positioned Microsoft as a formidable player in the AI space[5].
Another case of significant investment in a private AI company by mega technology companies is Anthropic. Amazon has announced a $4B investment[6]. Prior to that, Alphabet committed to investing up to $2B in Anthropic[7]. This combined stake is still thought to be in the region of 30%, putting their scale and timing a distant second to Microsoft from an investment point of view[8]. How Amazon and Alphabet will report their investment in Anthropic is yet to be seen in the upcoming financial reports and sustainability disclosures.
All these large-scale corporate investments add substantially more complexity to an already-difficult problem of assessing and reporting correctly total GHG emissions. This issue of complexity and a lack of agreed approach has been explored in detail in a recent Financial Times report[9], “Big Tech’s bid to rewrite the rules on net zero,” which describes where potential loopholes are and how large energy users might be able to hide their true emissions. Our paper examines these issues and considers the broader implications for disclosures where companies have substantial corporate investments in AI-focused ventures.
Challenges and Implications
The Greenhouse Gas Protocol, which supplies the world’s most widely used greenhouse gas accounting standards and guidance, introduced three “Scopes” (Scope 1, Scope 2, and Scope 3) for GHG accounting and reporting purposes[10]:
Scope 1: Direct GHG emissions. Direct GHG emissions occur from sources that are owned or controlled by the company.
Scope 2: Electricity-indirect GHG emissions. Scope 2 accounts for GHG emissions from the generation of purchased electricity consumed by the company. Scope 2 emissions physically occur at the facility where electricity is generated.
Scope 3: Other indirect GHG emissions. Scope 3 is an optional reporting category that allows for the treatment of all other indirect emissions. Scope 3 emissions are a consequence of the activities of the company, but they occur from sources not owned or controlled by the company.
“Technical Guidance for Calculating Scope 3 Emissions” provided by the Greenhouse Gas Protocol recommends that companies should account for the proportional Scope 1 and Scope 2 emissions of the investments that occur in the reporting year[11]. As such, disclosing investee company’s Scope 1 and 2 in the investor company’s Scope 3 emissions, proportionally to the ownership, aligns with global sustainability goals and guidance, but there are several challenges:
- Accurately measuring and reporting indirect emissions requires robust data-collection and verification processes.
- Detailed disclosures may reveal sensitive information about operational efficiencies and competitive strategies.
- Integrating GHG emissions data from partners, such as OpenAI, for example, into Microsoft’s reporting framework involves significant logistical and technical challenges, and possible double counting.
Understanding Carbon Neutrality and Net Zero
To evaluate a company’s environmental commitments, it is important to distinguish between “carbon neutrality” and “net-zero” emissions. Carbon neutrality refers to the reduction of a company’s emissions through credits or other measures without necessarily reducing the emissions at the source. In contrast, achieving net zero means that a company is reducing its overall emissions across its supply chain and operations to as close to zero as possible, using offsets only to cover unavoidable emissions.
The Science-Based Targets Initiative (SBTi)[12] defines net zero as “a state of balance between anthropogenic emissions and anthropogenic removals.” To stabilize global temperatures, net-zero GHG emissions must be achieved worldwide, and targets under the SBTi Net-Zero Standard must cover all emissions defined by the United Nations Framework Convention on Climate Change (UNFCCC)/Kyoto Protocol[13].
The SBTi’s Corporate Net-Zero Standard guides companies on how to align with global net-zero goals[14]. It requires rapid, deep emission cuts, with a 50% reduction by 2030 and at least 90% by 2050 to limit global warming to 1.5°C above pre-industrial levels. Companies claiming carbon neutrality may offset CO2 without reducing emissions to the levels needed for net-zero or covering all GHGs.
Renewable Energy Certificates
Furthermore, current GHG accounting standards allow companies to use “Renewable Energy Certificates” (RECs) to report reductions in emissions from purchased electricity (Scope 2) as progress towards meeting their science-based targets[15]. A renewable energy certificate is a market-based instrument that represents the property rights to the environmental, social, and other non-power attributes of renewable electricity generation. One REC is issued when one megawatt-hour (MWh) of electricity is generated and delivered to the electricity grid from a renewable-energy resource[16]. RECs are the legal instruments used in renewable-electricity markets to account for renewable electricity and its attributes, whether that renewable electricity is installed on the organization’s facility or purchased from elsewhere. The owner of an REC may make unique claims associated with renewable electricity that generated the REC (e.g., using or being supplied with a MWh of renewable electricity, reducing the emissions footprint associated with electricity use)[17].
Scope 3 GHG Emissions and Investments
Scope 3 emissions, which include indirect emissions from a company’s entire value chain, represent the largest and most complex category of GHG emissions. For technology companies investing in AI, the energy consumed by data centers, suppliers, and partners can be significant. Furthermore, according to the Greenhouse Gas Protocol[18], Scope 3 emissions also encompass emissions from investments (Category 15) and the Protocol recommends that companies should account for the proportional scope 1 and scope 2 emissions of the investments that occur in the reporting year.
One example is Microsoft’s partnership with OpenAI, which involves very significant computational resources for training and deploying AI models. It is well-documented that AI-model development processes are highly energy-intensive and can contribute significantly to absolute GHG emissions unless powered by clean energy. Even in the case of smaller models, such as GPT-3, it is estimated to have consumed 1,287 MWh[19] for training. This equates to 591 tCO2e[20] which is equivalent to GHG emissions from 60k gallons of gasoline or 591k pounds of coal, as per the GHG Equivalencies Calculator of the US Environmental Protection Agency (EPA)[21]. To date, electricity is still largely (>61% per capita[22]) generated from fossil fuels. This consumption would leave a significant carbon footprint. Given the critical role that AI now plays in Microsoft’s products and services, an investor could consider OpenAI’s energy consumption as an indirect consequence of Microsoft’s operations. Per the GHG Protocol, investors could include OpenAI’s GHG emissions in Microsoft’s Scope 3 emissions.
To our knowledge, Microsoft does not explicitly report OpenAI’s emissions. Similarly, Amazon and Alphabet have also invested in external AI companies, such as Anthropic, which raises the question of how these emissions should be accounted for by these companies in their upcoming reports.
Although there may be indirect evidence of OpenAI’s contribution to Microsoft’s emissions in its reported 30.9% increase in Scope 3 emissions since its 2020 baseline[23], I found no direct reference to OpenAI. Microsoft’s disclosure of Scope 3 excludes Category 15 of the GHG Protocol, as it is not being identified as relevant for Microsoft. Category 15 is to do with Investments. Given their partnership, some of OpenAI’s usage of Microsoft’s services would have been accounted for in Microsoft’s disclosure of Scope 1 and 2. With such a large stake in OpenAI (~49%), Microsoft should include OpenAI’s Scope 1 and 2 in its Scope 3 emissions[24].
Sustainable Investment
Technology companies face challenges in Scope 3 emissions reporting, particularly for indirect emissions from partners.
Even for Scope 1 and Scope 2, the tech world seems to be divided in their approach. Alphabet has so far been the only company among the five which has taken an approach to directly offset all energy consumption. Judging from the disclosures, Microsoft’s net-zero efforts appear to be comparable to Alphabet’s. However, if one accounts for the use of the RECs (Table 1), their success to achieve Net Zero by their own target of 2030 might require closer examination.
Table 1. Carbon Neutrality and Clean Energy Consumption.
| Alphabet | Microsoft | |
| Carbon Neutrality[25] | Since 2007[26] | Since 2012[27] |
| Environmental Report | Since 2016[28] | Since 2021[29] |
| Net Zero[30] | By 2030[31] | By 2030[32] |
| REC used (%) reported in 2023[33] | 0% | 53% |
| Carbon-Free Energy | A global average of ~64% carbon-free energy[34] | ~83% (19.8GWh[35] from carbon-free energy and 24GWh consumed in 2023[36]) |
Investors need to consider whether a company’s Scope 3 emissions fully reflect its operational carbon footprint and whether they could provide a more accurate picture of the company’s environmental impact.
Microsoft and Alphabet provide useful case studies for investors looking to understand how large technology companies manage their sustainability commitments. Alphabet is a comparator because it was, at least initially, the concern over Alphabet’s lead in the AI development that drove Microsoft’s investment in OpenAI[37]. Microsoft and Alphabet have taken different approaches to advancing AI, with Microsoft heavily investing in OpenAI, and Alphabet largely relying on in-house advancements. These distinct strategies also influence how each company manages its environmental impact.
As summarized in Table 1, Microsoft has been carbon-neutral since 2012. But achieving net zero by 2030, as they pledged, may require more substantial reductions in emissions due to their reliance on RECs. Alphabet has taken a unique approach[38] among the Big Tech companies and has phased out buying RECs[39]. It achieved carbon neutrality in 2007[40] and has committed to operating on 100% carbon-free energy by 2030. These different approaches have important implications for investors, who should closely examine each company’s progress toward their sustainability goals.
For a climate-change-conscious investor to form a sage judgement as to how plausible it is for a company to achieve its net-zero pledge, which most companies set forward, the disclosure of carbon-free energy consumption is a good yardstick, but different approaches taken by different companies make this analysis difficult.
Table 1 shows a top-line comparison between Alphabet and Microsoft from their environmental reports for 2023, published in 2024. Microsoft appears to be more advanced toward achieving 100% carbon-free energy. When the RECs are accounted for, however, this conclusion may be challenged since the proportion of unbundled certificate purchase compared to the total renewable energy consumed in 2023 is 53% for Microsoft and zero for Alphabet[41].
In addition, Alphabet began calculating its annual carbon footprint in 2006[42]. Every year since 2009, it has publicly reported the results to the Carbon Disclosure Project (CDP)[43]. The company has been carbon neutral since 2007, showing its long-term strategic direction to sustainability. Microsoft followed this five years later[44].
For investors, these differences highlight the importance of examining not just a company’s carbon-neutrality claims, but also the methods that they use to achieve these goals. Alphabet’s move away from RECs offers a more transparent and direct approach to reducing emissions, which could signal a stronger degree of long-term sustainability.
Alphabet’s challenges in reporting Scope 3 emissions accurately are no less difficult than those faced by other AI technology companies, yet Alphabet appears to have been more successful in keeping its carbon footprint under control. This success is largely attributed to its early and sustained investments in renewable energy[45]. Alphabet has been a leader in this area, achieving carbon neutrality since 2007 and matching its energy use with 100% renewable energy since 2017. Its goal to operate on carbon-free energy by 2030 is another ambitious step.
Although Microsoft has also committed to renewable energy[46], it has not matched Alphabet’s progress in this area and continues to face significant challenges, particularly in reducing the carbon footprint of its extensive and growing cloud infrastructure.
Key Takeaways
Sustainability-focused investors should focus on how companies manage their emissions across Scope 1, 2, and 3. Scope 3 emissions, which encompass investments and partnerships, are becoming increasingly important as large tech companies expand their AI capabilities. Investors might consider advocating for more comprehensive GHG emissions reporting so as better to assess long-term environmental and financial risks.
I argue that sustainable investors and shareholders should take these factors into account when considering investments in all companies, but especially technology companies. From a valuation standpoint, companies with strong strategies toward net zero may merit a lower discount rate. Properly measured clean-energy consumption could be used as a quality factor, influencing investment decisions. I also believe that buying REC credits[47] is a “smoke-and-mirrors” way of accounting. Long-term shareholders with sustainability objectives should be more actively engaged in promoting and supporting sustainable practices.
Disclosing the energy consumption of investees’ GHG emissions is a critical step toward comprehensive environmental accountability. While challenges exist, the ethical imperative and alignment with global sustainability frameworks underscore the importance of such disclosures. As stakeholders increasingly demand transparency and sustainability, global tech leaders should lead by example, fostering a culture of environmental responsibility and setting a benchmark for the technology industry.
[1] We’re getting a better idea of AI’s true carbon footprint | MIT Technology Review; Building a Greener Future: The Importance of Sustainable AI; Carbon Emissions and Large Neural Network Training; Environmental Impact of Ubiquitous Generative AI
[2] Wiedmann T, Minx J. The definition of a carbon footprint. In: Ecological Economics Research Trends. Pertsova CC (Ed.). Nova Science Publishers, NY, USA 1–11 (2008).
[3] Bjørn, A., Lloyd, S.M., Brander, M. et al. Renewable energy certificates threaten the integrity of corporate science-based targets. Nat. Clim. Chang. 12, 539–546 (2022)
[4] Microsoft Concern Over Google’s Lead Drove OpenAI Investment
[5] Microsoft’s Strategic Stake in OpenAI Unlocks Unique Investment Avenues
[6] Amazon and Anthropic deepen their shared commitment to advancing generative AI
[7] Google agrees to invest up to $2 billion in OpenAI rival Anthropic
[8] Anthropic is expanding to Europe and raising more money
[9] Big Tech’s bid to rewrite the rules on net zero
[10] The Greenhouse Gas Protocol
[11] Technical Guidance for Calculating Scope 3 Emissions
[12] Net-Zero Jargon Buster – a guide to common terms
[13] What is the Kyoto Protocol
[14] SBTi’s Corporate Net-Zero Standard
[15] SBTi’s Corporate Net-Zero Standard
[16] Renewable Energy Certificates (RECs)
[17] Offsets and RECs: What’s the Difference?
[18] Technical Guidance for Calculating Scope 3 Emissions
[19] Luccioni, A.S., Viguier, S. and Ligozat, A.-L. (2023). Estimating the Carbon Footprint of BLOOM, a 176B Parameter Language Model. In Journal of Machine Learning Research (Vol. 24). http://jmlr.org/papers/v24/23-0069.html.
[20] tCO2e: tons of CO2 equivalent
[21] https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator. The Greenhouse Gas Equivalencies calculator allows the conversion of emissions or energy data to the equivalent amount of carbon dioxide (CO2) emissions from using that amount. The calculator helps translate abstract measurements into concrete terms that can be more easily understood, such as the annual emissions from cars, households, or power plants.
[22] Hannah Ritchie and Pablo Rosado (2020) – “Electricity Mix” Published online at OurWorldInData.org. Retrieved from: ‘https://ourworldindata.org/electricity-mix’
[23] Microsoft’s emissions jump almost 30% as it races to meet AI demand
[24] https://ghgprotocol.org/sites/default/files/2023-03/Scope3_Calculation_Guidance_0%5B1%5D.pdf, “In general, companies in the financial services sector should account for emissions from equity investments in scope 1 and scope 2 by using the equity share consolidation approach to obtain representative scope 1 and scope 2 inventories. If emissions from equity investments are not included in scope 1 or scope 2 (because the Equity investments in joint ventures (non-incorporated joint ventures/partnerships/ operations), where partners have joint financial control reporting company uses either the operational control or financial control consolidation approach and does not have control over the investee), account for proportional scope 1 and scope 2 emissions of equity investments that occur in the reporting year in scope 3, category 15 (Investments).”
[25] “In a carbon neutral organization, there is a commitment to evaluate the CO2 emissions produced. This is coupled with finding ways to reduce those emissions and with compensating for these by reducing emissions elsewhere, or by removing an equal amount of CO2 from the atmosphere.”, https://www.weforum.org/agenda/2022/08/carbon-neutral-net-zero-sustainability-climate-change/
[26] 10 Years of Carbon Neutrality
[27] https://unfccc.int/climate-action/un-global-climate-action-awards/climate-neutral-now/microsoft-carbon-negative-goal
[28] Environmental Report: 2016
[29] Carbon Accounting at Microsoft
[30] Net-zero emissions are achieved when anthropogenic emissions of GHGs to the atmosphere are balanced by anthropogenic removals over a specified period (IPCC, 2018). Science Based Targets initiative (SBTi) Corporate Net-Zero Standard
[31] https://sustainability.google/operating-sustainably/net-zero-carbon/
[32] https://news.microsoft.com/en-cee/2023/05/18/microsoft-is-committed-to-achieving-zero-carbon-emissions-and-waste-by-2030/
[33] Big Tech’s bid to rewrite the rules on net zero ; proportion of unbundled certificate purchases compared to total renewable energy consumed, reported in 2023 CDP filings
[34] https://www.gstatic.com/gumdrop/sustainability/google-2024-environmental-report.pdf
[35] Microsoft 2024 Environmental Sustainability Report
[36] Microsoft 2024 Environmental Sustainability Report Data Fact Sheet
[37] Microsoft Concern Over Google’s Lead Drove OpenAI Investment
[38] Big Tech’s bid to rewrite the rules on net zero
[39] How tech companies are obscuring AI’s real carbon footprint; https://www.gstatic.com/gumdrop/sustainability/google-2024-environmental-report.pdf
[40] 10 Years of Carbon Neutrality
[41] Big Tech’s bid to rewrite the rules on net zero
[42] https://sustainability.google/operating-sustainably/net-zero-carbon/
[43] https://www.cdp.net/en
[44] Carbon Accounting at Microsoft, https://query.prod.cms.rt.microsoft.com/cms/api/am/binary/RW13XCo
[45] 10 Years of Carbon Neutrality
[46] https://www.microsoft.com/en-us/corporate-responsibility/sustainability/report
[47] Bjørn, A., Lloyd, S.M., Brander, M. et al. Renewable energy certificates threaten the integrity of corporate science-based targets. Nat. Clim. Chang. 12, 539–546 (2022)
Bitcoin 
Tether 
USDC 
XRP 
Dogecoin 
Lido Staked Ether 
LEO Token 
