Tech sector emissions and energy use grow with rise of AI: Report

A new ITU/WBA report, "Greening Digital Companies 2025," reveals that the tech sector's carbon emissions continue to rise, driven by AI and data center growth, with electricity consumption in data centers increasing 12% annually since 2017. While operational emissions for leading AI companies have surged by an average of 150% since 2020, the report also notes progress in renewable energy adoption and climate target setting among digital firms, though these efforts have not yet offset the overall increase in emissions, underscoring the need for more aggressive and transparent climate strategies.

Analysis

The "Greening Digital Companies 2025" report by the ITU and WBA reveals a significant and ongoing increase in the tech sector's carbon emissions and energy consumption, largely propelled by advances in artificial intelligence and the expansion of data infrastructure. Electricity consumption by data centers, crucial for AI development, rose by 12% annually from 2017 to 2023, a growth rate four times that of global electricity. Four leading AI-focused companies saw their operational emissions (Scope 1 and 2) surge by an average of 150% since 2020. In 2023, the 166 digital companies reporting emissions accounted for 0.8% of all global energy-related emissions, while 164 digital firms consumed 2.1% of global electricity (581 TWh), with ten companies responsible for half this demand. Despite these concerning figures, the report acknowledges encouraging progress in corporate climate action: eight companies achieved high scores (over 90%) in climate commitment assessments, up from three previously. Additionally, 23 companies operated on 100% renewable energy in 2023, an increase from 16 in 2022, and nearly half of the 200 companies assessed have committed to net-zero emissions. The number of firms publishing Scope 3 emissions targets also rose substantially from 73 to 110, indicating greater awareness of indirect impacts. However, these positive developments have not yet curbed the overall upward trend in the sector's environmental footprint, signaling an urgent need for more aggressive and transparent strategies to manage AI's environmental impact and accelerate digital decarbonization.

Key Decisions for Investors

• Investors should intensify scrutiny of tech companies, particularly those heavily invested in AI, regarding their energy consumption patterns and emissions disclosures, given the reported average 150% increase in operational emissions for leading AI firms since 2020 and the 12% annual rise in data center electricity use.
• Evaluate companies based on the credibility of their net-zero commitments and progress in renewable energy adoption, as firms demonstrating tangible advancements, such as the 23 operating on 100% renewables, may present more resilient long-term investments amidst growing ESG pressures.
• Monitor the increasing corporate focus on Scope 3 emissions; companies with robust strategies to address their value chain's environmental impact, now tracked by 110 firms, could gain a competitive advantage and reduce regulatory risk.
• Anticipate potential regulatory interventions and increased operational costs for companies with significant AI and data center operations due to their rapidly expanding environmental footprint and the report's call for enhanced disclosure and accelerated decarbonization.