Spots of a brown hue appear on a vest made of technical fabric in a green color.
The tech industry is making a significant impact in the world of Environmental, Social, and Governance (ESG) investments, with many of the 20 largest ESG funds tracked by MSCI being heavily invested in the sector. However, the carbon footprint of data centers used by tech giants is a growing concern, as the surge in AI workloads demands more power.
Recently, global data center electricity consumption was about 55 gigawatts, and it is projected to increase to 84 gigawatts by 2027 due to AI expansion. Google, a prominent player in the tech industry, reported a 12% decrease in U.S. data center emissions from 2023 to 2024 based on "market-based" accounting, which includes renewable energy purchases. However, activist analyses using "location-based" emissions (excluding offsets) indicate Google's emissions actually grew by 22% in that period. Google disputes this interpretation, asserting adherence to recognized protocols and third-party validation.
Despite this controversy, tech giants are taking steps to address energy consumption and renewable usage. They are purchasing renewable energy, improving energy efficiency, using closed-loop water systems, participating in grid flexibility initiatives, and exploring alternative fuels. Google, Meta, and others are investing in solar and wind power to offset carbon emissions, while companies like Microsoft are adopting closed-loop water systems to minimize water consumption.
However, some argue that relying on renewable energy purchases can mask actual emissions, depending on the accounting method used. Nevertheless, leading tech companies are investing heavily in renewable energy sourcing and innovative operational strategies to curb the growing environmental impact of their data centers.
The increased demand for communication technologies during the pandemic has led to a significant increase in the stock prices of tech giants like Alphabet, Facebook, and Microsoft over the past 12 months. However, the sector is not without criticism. The leadership of tech companies is typically predominantly white and male, and progress in improving diversity remains limited.
Tech companies are among the worst offenders when it comes to Base Erosion and Profit Shifting (BEPS), which costs governments an estimated $100 to $240 billion annually. The Biden administration is pushing for a global minimum corporate tax rate of 15%, and G7 political leaders are currently working on a coordinated plan to close BEPS loopholes and force large companies to pay taxes in the countries where they generate significant profits.
The goal of ESG investment is to reward companies that contribute to the common good, but BEPS undermines this principle by denying states tax revenues meant for funding essential services. As the ICT sector's relative share in global greenhouse gas emissions could reach around 14 percent by 2040, tech companies have a responsibility to find cleaner and more efficient ways to conduct their businesses.
While the tech industry has a significant impact on the environment and the global economy, its social benefits during the crisis and the lack of an obvious ecological footprint make it a preferred industry for many investors. However, as pressure grows to reform governance structures and address environmental concerns, tech companies must continue to innovate and adapt to meet these challenges.
Other sectors, such as finance and science, are taking notice of the environmental efforts in the tech industry and are exploring ways to replicate these practices. For instance, researchers in environmental science are investigating the potential integration of renewable energy sources and closed-loop water systems in their own facilities to reduce their carbon footprint.
Moreover, the ongoing debates surrounding Base Erosion and Profit Shifting (BEPS) have prompted calls for increased transparency and accountability in the tech industry, with parallels being drawn to the need for similar practices in other industries, particularly finance.
