What is Microsoft Doing to Make its AI More Sustainable?

Microsoft's race to build the infrastructure behind AI is becoming as much an energy story as a technology one.

As demand for AI computing accelerates, securing enough clean electricity, improving data centre efficiency and reducing pressure on water resources have become critical to the company's long-term growth.

The company's latest Environmental Sustainability Report sets out how investments in renewable power, smarter infrastructure and circular supply chains are intended to ensure AI expansion does not come at the expense of the energy transition.

Microsoft, energy and AI

Every AI query depends on energy-intensive physical infrastructure, making data centres one of the biggest opportunities to improve environmental performance while supporting rising electricity demand.

Microsoft says it is taking a whole-life approach to infrastructure development, designing facilities that consume less energy, water and raw materials while reducing embodied carbon through lower-carbon construction methods and improved operational efficiency.

The company is also using environmental product declarations to guide procurement decisions, encouraging suppliers to provide lower-carbon materials and helping stimulate broader market adoption.

Alongside this, Microsoft is introducing multi-storey data centres, hybrid mass timber construction and advanced cooling systems that lower embodied emissions while reducing dependence on freshwater.

The company says its Community-First AI Infrastructure programme also ensures new developments are planned alongside local energy systems, water resources, workforce initiatives 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.”

Feeding AI's hunger for power

The rapid expansion of AI has significantly increased electricity consumption, making access to clean, reliable energy a strategic priority for Microsoft.

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

Microsoft has also focused on reducing the amount of power required to run its infrastructure.

Improvements including power harvesting, more efficient server management and better workload distribution helped its global data centre portfolio achieve an average Power Usage Effectiveness (PUE) of 1.17.

Water efficiency remains another important focus as operators seek to balance rising computing demand with responsible resource management.

“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.”

Microsoft says new cooling technologies have reduced water consumption across its facilities, while rainwater harvesting systems have helped lower reliance on freshwater supplies.

Since 2022, the company has improved its water usage effectiveness by 25%.

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

Nurturing a circular economy

Microsoft is also working to reduce the environmental impact of the equipment that powers AI infrastructure.

For the second consecutive year, the company achieved a 92% reuse and recycling rate for decommissioned servers and components through its growing network of Circular Centres, which 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.”

The company is also using AI and automation to improve material recovery, including robotic systems capable of dismantling data centre hardware so valuable components can be reused or recycled.

"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."

Using AI to accelerate the energy transition

Microsoft says improving the sustainability of its own operations is only part of the picture, with AI increasingly being deployed to help tackle wider environmental challenges.

Its strategy centres on improving efficiency, supporting new markets, advancing policy and building partnerships that can accelerate decarbonisation across industries.

Long-term procurement of carbon-free electricity and carbon dioxide removal projects is helping expand emerging clean energy markets, while collaboration with suppliers is intended to reduce emissions throughout the value chain.

The company is also applying AI to optimise cooling systems, improve chip-level efficiency, support conservation through its AI for Good Lab and provide better environmental insights for decision makers.

By combining clean energy procurement, more efficient data centres, water stewardship, circular economy principles and responsible AI development, Microsoft says it can continue expanding digital infrastructure while reducing the environmental impact of the energy systems that support it.