Microsoft Builds AI Growth with Sustainability at its Core

The rapid expansion of artificial intelligence is transforming how technology is developed and used, but it is also increasing demand for energy, water, land and materials.

As AI and cloud services continue to grow, Microsoft recognises that innovation must be matched with environmental responsibility.

Rather than treating sustainability as a separate initiative, the company is embedding it into the design, construction and operation of its infrastructure, products and value chain.

Its 2026 Environmental Sustainability Report outlines how Microsoft is combining technology, operational efficiency and collaboration to build AI infrastructure that supports both business growth and long-term environmental progress. 

Building sustainable AI infrastructure

Every AI interaction relies on physical infrastructure, making data centre performance one of the most important areas for improving sustainability.

Microsoft is taking a full lifecycle approach by designing facilities that use energy, water and materials more efficiently while reducing emissions through lower-carbon construction materials and operational improvements. 

Strategic procurement plays an important role, with environmental product declarations guiding the selection of lower-carbon materials to encourage wider market adoption. 

The company is also introducing innovations such as multi-storey data centres, hybrid mass timber construction and advanced cooling technologies that reduce embodied carbon and minimise freshwater use. 

Alongside these engineering improvements, Microsoft continues to prioritise community-centred development through its Community-First AI Infrastructure approach, ensuring new data centres support local energy systems, water resources, workforce development and long-term community investment. 

“Since setting our commitments in 2020, the rise of AI is accelerating innovation and creating new opportunities for economic and societal progress – but it is also increasing demand for energy, water, land and materials,” says Melanie Nakagawa, Chief Sustainability Officer of Microsoft, on LinkedIn.

“As a company at the forefront of this transition, Microsoft has a responsibility to help ensure that technology strengthens, rather than strains, the systems and communities on which it depends.

“Sustainability outcomes will increasingly depend on our ability to align innovation with stewardship. 

“That means being accountable for the impacts of growth, strengthening partnerships and staying focused on durable outcomes for communities and the environment.”

Energy, water and operational efficiency

Growing demand for AI has significantly increased electricity requirements. This has made energy efficiency central to Microsoft's sustainability strategy.

During FY25, Microsoft matched 100% of its annual global electricity consumption with renewable energy while continuing to invest in carbon-free electricity projects, renewable diesel and emerging clean energy technologies. 

“This year’s results also made clear that progress now depends on adapting how we work. Water is one of the clearest examples,” wrote Melanie and Brad Smith, Vice Chair and President at Microsoft in the report.

“In FY25, we replenished for the first time more water globally than we withdrew, more than 14 million cubic meters, marking a major milestone on our journey to become water positive. 

“Reaching this point reflects years of work to improve water efficiency, expand replenishment efforts and scale partnerships around the world.”

Within its data centres, operational improvements such as power harvesting, efficient server management and optimised workload distribution have helped improve power usage effectiveness, achieving a global average Power Usage Effectiveness (PUE) of 1.17.

Water management is equally important, with new cooling technologies reducing water consumption, rainwater harvesting systems lowering reliance on freshwater supplies and water usage effectiveness improving by 25% since 2022.

In FY25, Microsoft replenished more than 14.2 million cubic metres of water, exceeding its total global water withdrawals for the first time and strengthening watershed restoration projects in priority regions worldwide. 

Circularity and supply chains

Microsoft is extending sustainability beyond its own operations by embedding circularity throughout its datacentres and supply chains.

The company achieved a 92% reuse and recycling rate for decommissioned servers and components for the second consecutive year, supported by its expanding network of Circular Centres that refurbish, recover and recycle cloud hardware. 

“Microsoft has eliminated nearly all single-use plastics in our primary product packaging, reducing the share that remained to just 0.07% at the end of calendar year 2025.4 But we are not rounding down,” say Brad and Melanie.

“We are staying accountable to the work required to eliminate them entirely.

"Across our cloud operations, we achieved 92% reuse and recycling of decommissioned servers and components for the second consecutive year, diverted 90.5% of construction and demolition waste from landfills and incinerators and expanded our Circular Centres to seven facilities globally.”

"AI and automation are also helping improve material recovery, with robotics being developed to disassemble data centre equipment and recover valuable components for reuse or recycling."

"The company is strengthening supply chain resilience by improving the recovery of rare earth elements from end-of-life hardware while working with suppliers to increase circular content in server packaging," continue Brad and Melanie.

"Waste reduction initiatives have also diverted thousands of metric tonnes of construction waste, packaging materials and operational waste away from landfill, demonstrating how circular economy principles can reduce resource demand while supporting more resilient procurement and supply chain systems.  

Technology and AI for long-term sustainability

Microsoft's sustainability strategy extends beyond improving its own infrastructure by using AI, technology and partnerships to accelerate wider environmental progress.

The company applies four key approaches, improving efficiency, building markets, advancing policy and forging partnerships, to support decarbonisation across operations and value chains.

Procurement is helping scale emerging sustainability solutions through long-term investments in carbon-free electricity and carbon dioxide removal projects, while collaboration with suppliers supports emissions reductions throughout the supply chain.

AI also contributes directly to sustainability by optimising cooling technologies, improving chip-level efficiency, supporting conservation projects through the AI for Good Lab and enabling more effective environmental decision-making.

By integrating energy, water stewardship, circularity, procurement, supply chain collaboration and responsible AI development into a single strategy, Microsoft aims to ensure that future technology infrastructure delivers lasting benefits for both communities and the environment.