Why ESG must be part of the operating system for data centre projects

Demand for new data centres continues to escalate, as the global community more fully embraces digital technologies for everything from business processes through to operating our buildings and infrastructure. Turner and Townsend, for example, are reporting a strong pipeline of new projects including hyperscale DC expansions and new builds in Australia, Hong Kong, China, Indonesia and India. Singapore is also likely to see new projects hit the drawing board when the government moratorium on new projects lifts in Q2 2022.

This year’s activity follows on from record-breaking growth in capacity in 2021, with Knight Frank recently calculating there was an increase of 1.5 gigawatts of capacity in APAC alone, equating to 24 percent year-on-year increase and outstripping the 19% rise in Europe, the Middle East and Africa.

A significant challenge of this major scaling up of the sector is the massive energy footprint and corresponding emissions footprint of their operation. Researchers have predicted that if the increase in data operations continues its current trajectory, by 2030 information and telecommunications infrastructure will be consuming just over 20% of the entire global energy supply.

At the point Singapore imposed its moratorium on new DCs, the sector was already consuming seven percent of the nation’s entire energy supply, according to Singapore’s Ministry of Industry and Trade.

Because 95 percent of the nation’s electricity supply is provided by fossil fuel gas generators, energy use management is crucial for the nation to meet its commitments to the Paris Accord and for reaching net zero.

This concern around energy use and the corresponding emissions footprint is one investors are keen to consider, particularly as the emissions associated with their asset investments form part of an investor’s own carbon burden.

Other environmental factors being scrutinised include the footprint of materials and the credentials of the supply chain delivering and maintain new DCs. In China authorities have become concerned about the emissions and energy use for new DCs and have imposed strict regulations around new DC or expansion projects including a full prohibition on new DCs in both Beijing and Shanghai.

Further challenges include spiralling costs for materials including steel and cement, skilled labour shortages or mobility limitations and in some jurisdictions, considerations around the amount of water required for cooling DCs. In a location like Hong Kong, for example, where most potable water is imported, minimising water use is an imperative for responsible development.

The solution to the multiple challenges around social license to develop and operate DCs and the ethical issue of potential contribution to global heating from energy-related emissions, is to apply an ESG (Environment, Social and Governance) lens to the business case. This has already been recognised by many of our DC clients.

For market leaders, the ESG focus also extends beyond internal strategic planning, for example, hyperscale data centre specialist AirTrunk, last year announced the first sustainability-linked loan in APAC for a DC project.

The loan incorporates benchmarks for Power Usage Effectiveness (PUE), which is one of the metrics assessed for benchmarking programs including Singapore’s Green Data Centre Standard SS564 and also for programs such as Green Mark and LEED.

Improving PUE and improving the ESG credentials of their assets is becoming core business for many critical systems asset owners and operators. Equinix, for example, has made green initiatives a fundamental element of its Asia-Pacific operations recognising there is both a cost-saving benefit and a reputational win.

That matter of reputation is key here, as the investors that DC developers and operators rely on are increasingly applying stringent criteria to making decisions about allocating their capital.

As an international forum hosted last year by legal experts Norton Rose Fulbright highlighted, strong ESG credentials are not just seen as a bonus, they are now regarded as a reliable indication of a DC operator’s reliable future performance.

And reliability is vital for assets like DCs which are fundamental to the operations of the modern world. That’s one of the reasons they are classed as critical systems by Cundall’s multidisciplinary team - data underpins every aspect of our lives from finance and transport through to energy supply, medical facilities, disaster response and the exchange of essential goods and services.

In this sector, ESG has a strong technical aspect. CBRE have noted that mechanical and engineered systems including the energy supply, energy-efficiency and cooling system reliability and efficiency are both a major contributor to the credentials of the facility and an important part of asset valuation.

We are increasingly having these types of conversations with clients who are looking for assistance to integrate ESG into their DC projects and portfolios. The potential for achieving net zero carbon is also on the agenda, and that is where a holistic, multidisciplinary approach ensuring DC engineering is as materially and operationally efficient as possible is entirely beneficial. Having the capability to also deliver the frameworks, pathways and validation for energy efficiency certifications, Green Mark, GRESB and carbon emissions reporting also add another dimension of value for these clients.

The value is not only for reporting to stakeholders, services such as parametric design tools, energy modelling and robust M&V and reporting frameworks can be the factor that convinces local consent authorities to greenlight a development application. The benefits continue beyond handover, for example, in Singapore part of the government’s new requirements for DCs is reviews every 10 years of the DC’s performance against its energy efficiency commitment.

Having the integrated digital engineering model and associated operational specifications to assist the facility operators to maintain optimal functioning are another piece of assurance for investors that DCs are an asset class delivering lasting value and returns – without taxing the planet beyond its limits.