An insatiable demand for new technology will require an additional USD2.9 trillion of global data centre spending up to 2028, which according to analysis from Morgan Stanley, equates to a USD1.5 trillion financing gap
Companies including Google, Amazon, Apple and most recently Meta plan to spend billions of dollars as they compete in the race to develop the most effective artificial intelligence (AI), but the requisite data centres to power the technology do not come cheap.
However, if they are to raise the necessary finance from private capital, they need to convince institutional investors that data centres, traditionally associated with excessive power and water consumption, are able to meet today’s stringent ESG standards.
Tamas Mark, Global Head of Real Assets at IQ-EQ, says institutional investors are keen to invest in data centres – according to Linklaters, within the first five months of 2024, they invested over USD22 billion was – but there is an expectation such assets are proved sustainable.
“Incorporating ESG factors plays a crucial role in the sustainable operation of data centres, including reducing energy consumption, managing waste and engaging with local communities. By implementing energy-efficient solutions and adhering to international guidelines or exceeding such targets, data centres can improve their ESG performance while reducing operational costs, minimising their environmental impact and becoming more attractive to not only investors but also tenants – many of which have their own sustainability goals and net zero targets,” he says.
Asset managers, pension funds and other institutional investors are all subject to sustainable reporting requirements such as the EU’s Sustainable Finance Disclosure Regulation (SFDR) and have also committed to Net Zero initiatives, requiring them to accurately report and mitigate Scope 1, 2 and 3 emissions within their portfolios. Consequently, they require transparency from their portfolio companies.
Mark says: “Fund managers are pushing operators for more information on their power purchase agreements and their duration, AI-power consumption, geographic distribution and Scope 3 emissions. One-third of investors managing SFDR Article 8 and Article 9 funds – which have robust ESG disclosures, including energy efficiency, renewable energy use and water consumption metrics – have exposure to data centres.”
However, Mark warns that while companies are improving their sustainability reporting, such data should be taken with a degree of scepticism.
“The variance in methodologies and the lack of standardisation within the sector leads to erroneous accounting for sustainability metrics. The Guardian’s analysis in September 2024 uncovered major under valuations of greenhouse gas emissions disclosed by the major data centre operators: Google, Microsoft, Meta and Apple. According to the analysis, the emissions reported between 2020 and 2022 were likely to be 662 per cent higher than what was officially disclosed. To ensure investors meet their Scope 1, 2 and 3 emissions, data centres must provide transparency as to their carbon footprint.”
To achieve a sustainable future for data centres, Mark calls for stronger alliances between industry stakeholders.
“The future of sustainable data centres will involve greater collaboration among industry stakeholders, including technology providers, data centre operators, governments and NGOs. This collaboration will foster the sharing of best practices, drive innovation, and promote the adoption of global standards for sustainability,” he says.
