Why Microsoft is Squeezing Suppliers on Scope 3 Emissions

To tackle emissions it does not directly control, Microsoft is urging its suppliers to increase their sustainability efforts.

The company’s Scope 3 emissions — those generated from suppliers, partners and the use of its products — make up more than 97% of Microsoft's total carbon footprint.

Nearly three-quarters stem from just two categories: purchased goods and services and capital goods.

"Nearly 75% of Microsoft’s Scope 3 emissions come from purchased goods and services (things like raw materials, office supplies) and capital goods (these include buildings, vehicles)," explains Melanie Nakagawa, Microsoft’s Chief Sustainability Officer.

"This is an important reminder that our suppliers play a pivotal role in helping us reach our goal of carbon negative by 2030."

Microsoft's summit in Singapore

This message was emphasised in May at the first Microsoft Global Supplier Sustainability Summit in Singapore.

Suppliers from across Asia and beyond convened to evaluate progress, exchange strategies and chart a path for long-term emission reductions.

For Microsoft, it marked the beginning of what it hopes will become an ongoing forum for driving decarbonisation through collaboration.

"Microsoft is not doing this work because decarbonisation is easy; we are doing it because it is necessary," said Will Hudson, Microsoft’s Director of Energy & Sustainability Policy, in opening remarks.

To meet its goal to become carbon negative by 2030, Microsoft must first reduce emissions it directly controls - Scope 1 and Scope 2 - to near zero.

It must then cut Scope 3 emissions by more than half and remove more carbon than it emits.

Scope 3 includes everything from emissions embedded in hardware and infrastructure to those produced when customers use Microsoft products.

The company's indirect emissions have increased by 30.9% since 2020, driven largely by data centre expansion to meet rising demand for cloud services and AI.

The production of semiconductors and electronic parts is energy-intensive due to the processes and materials involved, but these are needed to continue growing Microsoft's services in line with demand.

To help suppliers target the worst offenders, Microsoft has identified key emissions “hotspots” in its supply chain.

These areas are not only the highest emitters but also offer the most potential for meaningful reductions.

Materials like metals, glass and plastics used in data centres are a major source due to the emissions from mining, smelting and forming processes.

The impact of clean energy

A central theme of the summit was electricity.

For many suppliers, transitioning to renewable energy is the most effective method to diminish emissions.

Yet, access to carbon free electricity (CFE) remains a hurdle in many regions.

Microsoft’s 2024 Supplier Code of Conduct now includes a clause: suppliers must, when asked, move to 100% CFE for goods and services provided to Microsoft by 2030.

This electricity must be locally sourced and contribute to new CFE generation rather than depleting current resources.

"This approach will drive new CFE generation into the grid and push down fossil in the power mix," adds Will.

Microsoft is also using its US$1bn Climate Innovation Fund to back technology that enables carbon cuts and removals.

Investments include LineVision, which uses AI to unlock extra capacity in existing transmission lines.

That means more renewables can be added to the grid without building new infrastructure.

According to Leo Aspauza, Director of Cloud Supply Chain Sustainability: “There are tens of thousands of lines of calculations to calculate the carbon footprint of one device.”

Currently, 70% of Microsoft’s product carbon footprints are calculated using primary data from suppliers, compared to an industry average of just 20%. 

This has freed Microsoft’s sustainability teams to focus less on gathering data and more on acting on it — finding efficiency opportunities and helping suppliers get access to clean energy.

Tackling Scope 3 emissions

Despite an increase in Scope 3, Microsoft’s 2024 sustainability report shows Scope 1 and 2 emissions have decreased by 6.3% since 2020.

To combat emissions growth, Microsoft has launched a company-wide initiative to reduce Scope 3 emissions.

It includes more than 80 targeted actions, such as requiring high-volume suppliers to switch to 100% clean electricity by 2030 and improving emissions measurement using digital tools.

The strategy builds on four main areas: better measurement, more efficient datacentres, partnerships for new technology – such as low-carbon concrete and steel – and market-shaping procurement to help grow demand for greener materials.