ESG and Data Centre Industry: Challenges and Trends
Thu 4 May 2023
Environmental, sustainability, and governance (ESG) frameworks are growing in importance for the data centre industry, determining long-term strategies and even business success.
ESG is a complex and technical topic that requires knowledge of architecture, technology hardware and software, as well as energy sourcing and usage. These frameworks also involve the intersection of a variety of different agencies, all of whom are claiming a stake in the demonstrable ESG of data centre companies.
There are many stakeholders within the data centre industry that are demanding commitment to ESG, including customers that want a ‘green’ service provider, governments enforcing sustainability policies, financial groups demonstrating environmental values to investors, and more.
As ESG in the data centre evolves, there are a variety of trends and challenges that the industry should be aware of to ensure that their strategies are aligned with changes to come.
Challenge: Standardised Measurements and Metrics
Recently, Energy Digital Magazine named its top 10 most sustainable data centre operators for 2023, including Switch (#10), Equinix (#4), Schneider Electric (#3), and Google Cloud (#1). However, the determinants of sustainability varied from one company to the next.
Some operators like Switch were recognised for awards presented to the company by Greenpeace and S&P. Alternatively, Equinix was listed in the top 10 for having a 2030 goal for carbon neutrality and investing $129 million in energy usage improvements in their facilities. Schneider Electric took third for its work in supporting clients and countries turn to renewable sources of energy.
Google Cloud secured the top spot for being the first major company to use 100% renewable energy.
The challenge here is gaining agreement across a diverse, global group of stakeholders within the data centre industry on which metrics are meaningful and must be tracked.
Trend: Sustainability-Linked Loans
Sustainability-linked loans (SLLs) are money provided to businesses, with terms tied to the achievement of sustainability goals. The better a business does, with regard to specific sustainability metrics, the better the terms of the loan.
Recently, AirTrunk reached a milestone of AU$5 billion in ESG financing. This made AirTrunk one of the largest recipients of sustainable loan financing in the world – tying 100% of the hyperscale data centre company’s debt funding platforms to reaching non-financial sustainability goals.
This is an enormous step toward increasing the importance and legitimacy of sustainability targets in the data centre. At what other time has a company’s entire debt been structured around a non-financial goal?
While reaching financial targets is of course still critical to business success, this may signal a massive change in the way that traditionally bottom-line focused investors are measuring company success.
Trend: Industry Associations
While more data centre companies are releasing ESG reports from their corporate offices, they are also looking for different ways to demonstrate their commitment to meeting ESG goals. By joining an environmentally-focused trade group, a company can use association branding, research, and links to show that they are a willing participant in moving the industry forward to a greener future.
These groups range from the Climate Neutral Data Centre Pact that includes more than 100 data centre companies, to local groups that are aligned with specific countries or regions. Bringing together businesses located inside a single country has a direct benefit, helping businesses align with a specific regulatory landscapes.
ESG will continue to influence the data centre industry, changing the way that facilities are designed and operated, how processes are optimised, even how data centre projects are financed and how success is measured.
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