AI's thirst for energy complicates ESG investors' relationship with tech

The explosion of artificial intelligence has put to the test the relationship between technology giants and ESG funds, which invest using environmental, social and governance criteria. Firms like Microsoft and Alphabet are facing increasing pressure to disclose data on their energy consumption, amid a 160% increase in electricity demand from data centers projected for 2030. As emissions rise, sustainable investors, who manage billions of dollars, are evaluating how to adjust their portfolios and demand greater green commitments to the technological ones.

The rise of AI and the impact on emissions

The growing adoption of artificial intelligence (AI) has sparked a real technological race, but it has also raised concerns among ESG investors, looking to balance profitability with sustainability criteria. The expansion of data centers to meet the demand for AI, driven by giants such as Microsoft, Google and Amazon, has driven energy consumption through the roof. According to Goldman Sachs, electricity demand from data centres is expected to increase by 160% by 2030, raising serious questions about the environmental impact of this growth.

Although tech companies have long been a favorite of sustainable investors due to their lower emissions compared to sectors like manufacturing or energy, AI is disrupting that dynamic. Microsoft, for example, reported a 30.9% increase in its supply chain emissions in 2023, while Alphabet saw a 13% increase in its total emissions. These increases are largely due to the growth of data centers needed for advanced computing. These figures are raising questions among fund managers who seek to ensure that their portfolios are not only profitable, but also environmentally friendly..

Concerns about emissions and transparency

The lack of accurate information on AI-related energy use is a growing concern for ESG investors, who are now asking tech companies to be more transparent about their energy consumption and its renewable energy sources. Eric Pedersen, head of responsible investments at Nordea Asset Management, said sustainability in the AI ​​era has become a core issue for its portfolios. Nordea, which manages 265 billion euros, has 17 billion euros invested in technology companies such as Microsoft, Amazon and Meta, and is demanding more data on the environmental impact of AI.

While none of the big tech companies have revealed plans to significantly reduce their carbon footprint in relation to AI, some have begun to take steps. Amazon, for example, has announced the purchase of nuclear power to supplement its renewable energy sources, while Microsoft recently signed an agreement to reactivate a nuclear plant in Pennsylvania, the first of its kind in history. These investments in clean energy could be key to technology companies remaining attractive to sustainable funds, which under EU Article 9 rules require a 7% annual reduction in carbon emissions of the stocks they invest in.

However, some investors remain skeptical. Jason Qi, senior ESG research analyst at Morgan Stanley's Calvert Research and Management, noted that, While some tech companies are improving their disclosure of energy data, none have offered the transparency needed to fully assess their environmental impact.Concern about indirect emissions, known as “Scope 3 emissions,” which include supply chain emissions, is also growing.

Technology and sustainability: a delicate balance

As data center energy consumption continues to rise, especially driven by AI, the ability of technology companies to maintain their appeal among ESG investors will depend on how they manage the balance between growth and sustainability. While companies like Amazon have taken steps toward purchasing nuclear power to offset their energy needs, other players like Meta have acknowledged the difficulties in maintaining their carbon neutrality goals in the face of exponential growth in AI.

Although some voices within the industry point out that AI will eventually could help other sectors become more energy efficient, investors are demanding concrete action today. Jason Qi of Calvert Research and Management highlights that while some tech companies are leading the way in transparency, such as Microsoft with its power purchase agreements (PPAs), there is still insufficient information on the exact energy consumption related to AI.