AI + Fossil Fuels = Climate Risk

AI + Fossil Fuels = Climate Risk

AI is often criticized for its GHG footprint, but the intersection of AI and climate risk goes further than that. In December 2024, Microsoft shareholders voted on a resolution requesting that the firm report on risks associated with providing AI and other advanced technologies that support new oil and gas development. The resolution maintained that these technologies undermine Microsoft’s climate mitigation targets and expose the firm to reputational, operational and competitive risks.

Although the resolution did not pass – only 10% of shareholders voted in favour – the risks will not disappear. After about 3 years of internal lobbying, several Microsoft employees have resigned in protest of these new oil and gas contracts – at least two left in early 2024 and published their motivations for doing so. Employees are speaking out, sounding the alarm that the tech giant does not report on emissions from fossil fuel production enabled by its technology. Greenwashing accusations are possible.

Microsoft is under fire from shareholders, but it is not alone in offering advanced technologies designed for oil and gas production. In 2020, Greenpeace published a report highlighting ties between the oil and gas industry and big tech – specifically, Amazon, Google and Microsoft. Within days of the report’s publication, Google pledged to stop offering customized AI for oil and gas extraction; Amazon and Microsoft made no such commitment.

Being seen as less green than competitors comes with reputational risks and the potential to lose market share. Verdantix survey data show that many organizations consider sustainability when choosing suppliers (see Verdantix Global Corporate Survey 2024: Supply Chain Carbon Management Priorities, Budgets And Tech Preferences). As a result, ties with the fossil fuel industry make organizations less attractive to firms worried about supply chain and third-party risk. Tech firms often highlight AI’s ability to do good, but developing tools for the fossil fuel industry compromises their reputation.

In short, climate-related risks interact with many other types of risk. As demands for transparent climate risk reporting and non-financial risk management ramp up, organizations should expand the boundaries of analysis. Measuring the indirect emissions that a product enables, and other far-reaching impacts of a business’s activities, may not be addressed in established frameworks – but stakeholders are paying attention. Organizations exist within a complex and interconnected world. Diverse risks are related. Neglecting this fact leads to poor risk management and, ultimately, hurts the bottom line.

As we move into 2025, watch this space to learn more about enterprise risk management and the significance of non-financial risks.