In the face of the ever-growing climate crisis, sustainable business operations are increasingly important to organizations and their consumers. Investors prefer companies that prioritize sustainability. For instance, in January 2020, BlackRock, the world’s largest asset manager, declared that sustainability would be a key component of its risk management and investment strategy and requested sustainability data from companies in which it invests. (Although, in recent news, BlackRock has backtracked on its environmental commitments.) Many companies have turned to environmental, social, and governance (ESG) reporting, which promises transparency between companies and stakeholders and provides insights into a company’s nonfinancial operations, such as environmental and social impacts.
Though transparency is the goal, ESG reporting is riddled with opacities due to its design. Without required public disclosures, private governance with voluntary disclosures to third parties dominate. Nongovernmental organizations (NGOs) create ESG reporting standards, and many companies submit ESG data to these NGOs. Id.
With the rise of artificial intelligence (AI), hopes have been pinned on AI improving the quality of ESG reporting. Id. However, there has been scant attention paid to the environmental impact of using AI and its associated data centers. This article offers a window into how one may use ESG reports to better understand the environmental impact of AI and data centers. We describe the steps we followed to reveal Microsoft’s increased water consumption in recent years and highlight the barriers and data limitations encountered.
Microsoft’s environmental sustainability reports have evolved over time when it comes to water, both in naming conventions and content. The reports did not begin to track water data until 2010, and even though the reporting has grown more consistent over time, it is difficult to gather data from these earlier years. We were primarily interested in the use of water in more recent years when Microsoft has become a leader in generative AI. For this purpose, we compiled the reported data in table 1 showing total water withdrawal and consumption across Microsoft’s global operations between 2017 and 2023. Data used to create the table can be found on Microsoft’s Report Hub.
Year |
Total Water Withdrawal (megaliters) |
% increase in withdrawals from previous year |
Total Water Consumption (megaliters) |
% increase in consumption from previous year |
|---|---|---|---|---|
2017 |
5,148 |
N/A |
1,913 |
N/A |
2018 |
6,719 |
31% |
3,326 |
74% |
2019 |
7,505 |
12% |
3,946 |
19% |
2020 |
7,936 |
6% |
4,196 |
6% |
2021 |
8,068 |
2% |
4,773 |
14% |
2022 |
10,706 |
33% |
6,399 |
34% |
2023 |
12,951 |
21% |
7,844 |
23% |
The ESG reports reveal major increases in water consumption compared to the prior year in every year in this most recent seven-year period. This gives us a general idea of how Microsoft’s water withdrawals and consumption have been increasing, but questions remain. Why do we see such large increases in consumption from 2017 to 2018 and from 2021 to 2022? Are there specific changes in Microsoft’s business operations, such as AI use and data centers, that could account for these dramatic increases? To answer these questions, one needs to take a deeper dive and review the data that went into compiling these annual ESG reports. The difficulty, however, is that this additional information is not easy to access.
Each report since 2020 states that more information on water data can be found in Microsoft’s CDP Water Response. CDP is a nonprofit where companies disclose their environmental impact data. It originally began as the Carbon Disclosure Project in 2000 focusing on the climate impact of companies, but it has since expanded to include data on other issues such as deforestation and water security. The nonprofit collects data from over 5,000 North American companies.
Unlike government-held data that is subject to the Freedom of Information Act, these ESG reports are not readily available to the public. When we tried to access the data that Microsoft filed with CDP we hit a paywall. As a team of academic researchers, we turned to our public university’s library, but they did not have access either. We then contacted CDP twice in writing and requested access and information on the cost of access. CDP responded that the request was received and that we would be later contacted regarding the inquiry. Weeks have passed and we have not received any further correspondence.
We did, however, find one Microsoft filing with CDP that was publicly available through a link from Microsoft. The 2022 Water Security Questionnaire provides some insight into Microsoft’s water withdrawal and consumption between July 1, 2020, and June 30, 2021. The company explained that most of their water data was estimated rather than measured. Further, “[f]or datacenters, water consumption is estimated as a percentage of withdrawals based on the cooling type of the facility and region. There exists uncertainty of +/-20 percent in the data due to data gaps, metering/measuring constraints, and extrapolation methodology.”
This explanation demonstrates some of the ambiguities surrounding ESG reporting of water use. Further, this is just for the one year not hidden behind the third-party paywall. We do not know if there is additional information filed with CDP that could help paint the entire picture of Microsoft’s water withdrawal and consumption related to AI and data centers because that is not publicly disclosed.
Our findings highlight important differences between public and private environmental governance in ESG reporting: transparency, accessibility, and cost. NGOs are not required to make the ESG data they use publicly accessible, whereas public environmental governance often requires public reporting. For example, the Toxic Release Inventory is a mechanism required by federal law that mandates manufacturers of specific substances to track and publicly disclose their annual emissions of those substances. 42 U.S.C. § 11023. Under public environmental governance, ESG information and data are more freely accessible.
In sum, though ESG reporting aims to provide transparency about a business’s environmental and social impacts and private environmental governance practices may limit access, leaving out members of the public that also have an interest in this information. Given the significant increases in water consumption disclosed by Microsoft, the public should have a clearer view of the specific role AI and data centers are playing regarding scarce and critical resources.
