Microsoft’s supply chain is hooked on fossil fuels

In early 2020, Microsoft’s CEO Satya Nadella hopped on a relatively small stage to announce big news to the world — the tech giant was determined to reach carbon negativity by removing even more carbon than it emits in just a decade. To do that, it was not only cutting emissions from its direct operations but also across its whole supply chain. Yet that last part was set to be a gargantuan challenge.

The following year, one of Microsoft’s electronics suppliers, a Taiwan-based company called Chicony Electronics, opened a new factory in Thailand and expanded some of its plants in China. With the upgraded facilities, its production grew. In a sort of snowball effect, it had to buy more things, hire more services, and its footprint expanded. In fact, just in new services, Chicony reported a 230 percent increase in emissions in 2021. By the end of the year, its total CO2 emissions had gone through the roof, hitting an almost 700 percent increase from the previous year. 

Chicony is just one of several cases where Microsoft’s suppliers have not necessarily aligned with the tech giant’s climate targets. Two years after setting its “carbon negativity” goal, Microsoft has struggled to limit its suppliers’ use of fossil fuels, which has become, in the words of the company’s own 2022 Sustainability Report, its “ultimate decarbonization challenge.”

The Verge reviewed 27 emissions inventories selected at random from Microsoft’s list of top 100 suppliers, using voluntarily submitted data from the non-profit disclosure system CDP. While some of Microsoft’s suppliers were making progress in cleaning up their carbon footprint, most had actually increased their emissions since the company announced its big climate ambitions. 

Some suppliers did not even have a single contract to power their factories with electricity from renewable sources. This means all their electricity consumption — their main source of emissions — was coming from fossil fuels. 

The Verge analyzed a small sample compared to Microsoft’s thousands of suppliers, but the data gathered shows many of them haven’t necessarily complied with the tech giant’s net-negative target.

In 14 out of 27 cases analyzed, Microsoft’s top suppliers reported a rise in emissions — which ended up reflecting in the tech giant’s own emissions reports. Between 2020 and 2021, Microsoft’s supply chain emissions grew 15 percent to reach 12,510,000 metric tons of CO2, an amount similar to the country of Panama’s entire footprint in 2021. In 2022, those emissions continued to grow at a slower rate.

Still, controlling supply chain emissions is not exclusively Microsoft’s challenge. Most big tech companies are highly reliant on fossil fuels across their products’ life cycle supply chains, according to a 2022 report by Greenpeace. Out of the top 10 ranked consumer electronics brands, only Apple had made significant progress in cleaning up its supply chain, the report said. The company achieved this by supporting some of its suppliers in reaching 100 percent renewable energy by 2030 and adding close to 16 GW of new power across its supply chain. 

Microsoft has even made some progress reducing emissions from its direct activities. The company was one of the only three big tech companies analyzed by Greenpeace —alongside Apple and Google — that managed to go 100 percent renewable in their direct operations. However, these emissions are tiny (less than 5 percent of their total footprint) when compared to their supply chain’s footprint. 

Like most tech giants, this is where Microsoft has struggled, said Reena Skribbe, climate policy analyst at the think-tank NewClimate Institute. “It remains unclear how Microsoft plans to reduce most of its (supply chain) emissions,” she said.

While other sectors like transportation or the fossil fuel industry can have a more direct impact on global emissions, Big Tech’s footprint is important for its sheer size, said Glen Dowell, senior director of MBA programs at Cornell University and corporate responsibility researcher. “Increasingly, our daily life is interfacing with these companies. They’re trying to get more and more share of our time. And so, every second of our use can be accounted for in energy,” Dowel said in an interview with The Verge.

“It is absolutely possible to reduce tech supply chain emissions in line with a 1.5 degrees Celsius pathway, but it won’t happen unless tech giants like Microsoft target 100 percent renewable energy across the supply chain by 2030,” said Greanpeace’s East Asia Global Tech Project lead, Xueying Wu, referring to the global temperature rise limit imposed by the Paris agreement.

The Verge contacted Microsoft for comment, but the company declined to respond.

Microsoft’s value chain is messy and complicated, but it can be divided into five general stages: sourcing raw materials (basically, mining), processing the minerals, turning them into component parts, assembling components and, in the last stage, Microsoft’s finished products — the laptop, tablet or gaming console you directly buy. Then, emissions calculations also take into account the energy you consume when using those products up until their disposal. 

There are over 400 Microsoft factories in 23 different countries, and the whole process involves “tens of thousands” of suppliers and “millions” of customers using their products, according to the company’s 2022 report. As a result, despite the company’s efforts, emissions can go up if its suppliers don’t cooperate. And they often don’t.

Fourteen out of 27 of Microsoft’s top suppliers reviewed by The Verge reported an increase in their emissions. Several of them cited the covid-19 pandemic as a major disruptor. Hynix, a South Korean semiconductor manufacturer, stated that “in 2021, the increased use of computers, laptops and smart devices caused by covid-19 increased demand for DRAM and NAND (chips), resulting in increased greenhouse gas emissions.” In 2021, the company reported gross sales of $42,9 billion — a 35 percent rise from the previous year. At the same time, emissions in 2021 increased 1.19 percent from 2020. 

In reply to The Verge, Hynix said it increased its renewable energy portfolio —particularly in China — and managed to lower direct emissions from its operations in 2022. The figure is still under third-party verification and does not account for the full life cycle of its products. 

Other large suppliers also said the pandemic led to a rise in emissions. Intel, the world’s second-largest chipmaker, reported an 11 percent emissions increase in 2021 from the previous year, mainly due to getting more sales. In a reply to The Verge, the company said emissions from its direct operations decreased 4 percent the following year, in part due to using a larger amount of renewables to power its plants.

Qualcomm, the world’s third-largest chipmaker, reported a 27 percent increase between 2019 and 2021, saying it created new facilities that increased emissions.

On at least two occasions, suppliers did not have one single renewable energy purchase, which means all of their electricity and fuel consumption came from fossil fuels. Taiwanese battery manufacturer Dynapack reported zero renewable consumption in 2021, even though the company is aiming to achieve 100 percent by the end of the decade. This was also the case for Taiwanese manufacturing supplier AVC, which consumed all of its energy in 2021 from fossil fuels.

While all other suppliers did claim to use renewable energy in their operations, some of them weren’t really using that much. Both South Korea’s Hynix and Taiwan’s Chicony reported only 4 percent of their energy came from renewables in 2021. Hynix claims to have increased its renewable energy portfolio to 30 percent in 2022. The data is not yet publicly available, but it’s due to be published in July.

In many cases, however, accessing renewables is not that easy. Many countries do not have enough clean energy to supply large operations. AVC, for example, stated in its reports that its factories in Southern China did not have access to renewable electricity yet. Microsoft has made some efforts to offset this issue by adding renewables into several countries’ national grids. In Ireland, the company added about 900 MW of onshore wind and solar, which is equivalent to 30 percent of the country’s target for renewable electricity produced by private corporations. Still, the company does not request its suppliers to do the same.

In contrast, nine of Microsoft’s suppliers reviewed by The Verge reported progress in lowering their emissions. In some cases, they achieved this by buying electricity from different places. AVX, a Japanese-US microprocessors manufacturer, noted that last year, it adopted new solar power sources and increased purchases of “green power” in the US and Europe.  

In most cases reviewed, suppliers reported their biggest source of emissions came from electricity consumption and use of fuels in their facilities, with the two most common sources being oil and gas.

The Verge contacted all suppliers mentioned in the story but only received responses from Intel and Hynix.

Microsoft’s strategy toward net zero is ambitious. Beyond just reaching net zero by 2030, the company wants to suck more carbon out of the atmosphere than it emits every year. But experts consulted by The Verge say this would require stricter efforts on its part. 

To address its direct emissions, the company has purchased more than 13 GW of low-carbon energy and has also made a significant gamble on carbon removal. Microsoft already removes about 1.4 million metric tons of its CO2 emissions through carbon offsets. But its long-term ambitions are about five times greater, aiming to remove more than 5 million metric tons by 2030 — which is more carbon than all the CO2 absorbed by Costa Rica’s forests every year.

In the short term, most of Microsoft’s carbon removal comes from forestry projects, according to its 2022 offsets report. These types of projects have gained criticism recently for not adding new emissions reductions and, at times, catching fire. Microsoft, too, says in its 2022 report this generates “concerns” about how long these projects can last without being degraded. 

But in the long term, the tech giant’s bet is even more complex — and riskier. Microsoft signed a 10-year deal with the Swiss company Climeorks to build machines that can suck carbon out of the air and store it in basalt rock, a method the company claims is already achieving results. This technology, however, is unproven at scale, and the UN recently discouraged its use to offset emissions.

While direct emissions have straightforward solutions, Microsoft’s approach toward supply chain emissions is less clear, experts consulted by The Verge said. The tech sector has a particularly global supply chain, Cornell’s Dowell explained, which makes it difficult to even trace it. In part, Microsoft can’t directly control where its suppliers operate, but the company can enforce tighter regulations, he said. Both Wu, from Greenpeace, and Skribbe, with the NewClimate Institute, agreed.

In July 2022, Microsoft updated its Supplier Code of Conduct to require all suppliers to cut carbon emissions by 55 percent by 2030. While this was a step in the right direction, some details are still uncertain, Srkibbe said. One of them, for example, is that it remains unclear whether suppliers can rely on carbon offsets to achieve the target instead of directly replacing fossil fuels with renewables, she said.

“Microsoft should require its suppliers to achieve 100 percent renewable energy by 2030 and support them in this transition,” Wu said. 

Most big tech companies have a similarly complex chain, but some have found effective ways to help suppliers decarbonize, Wu said. Apple, for example, created incentives for suppliers with 100 percent renewable energy targets and has mobilized more than 200 of them to use clean energy for their products. Still, the company’s code of conduct does not explicitly require them to reach 100 percent renewable energy. Microsoft has built new renewable energy into several countries’ national grids but does not have a similar program of incentives with suppliers.

“As a major global player, Microsoft is in a unique position that allows them to significantly increase the pressure on its suppliers to reduce their emissions. It is the responsibility of Microsoft to show that they are serious about reducing emissions,” Skribbe said.

“If a company with that much market power cannot influence the climate ambition of its suppliers, then I don’t know who could,” she added.