The world of data centers is facing a significant challenge, and it's not just about the technology within these facilities. As we delve into this topic, it becomes clear that the very environment in which these centers operate is at risk. Nearly 80% of data center capacity is vulnerable to climate-related hazards, a stark reminder of the urgent need to address climate change and its impact on critical infrastructure.
The Climate Threat to Data Centers
The study by First Street, a climate risk analytics firm, paints a concerning picture. It reveals that a vast majority of data centers globally are exposed to acute climate hazards such as flooding, extreme winds, and wildfires. These events can disrupt operations, increase downtime, and incur significant insurance and repair costs.
What makes this particularly fascinating is the fact that it's not just singular, dramatic events that pose a threat. The chronic effects of climate change, such as extreme heat and drought, can also have a profound impact. These conditions affect energy efficiency and drive up costs, highlighting the need for a comprehensive understanding of climate risks.
Outdated Models and Underestimated Risks
One of the key issues, according to First Street CEO Matthew Eby, is the reliance on historical data for underwriting real assets. The climate is no longer behaving as it once did, and models that don't account for this are simply inadequate. As heat and drought intensify, the traditional metrics used by investors may be mispricing the true risk.
Jeremy Porter, chief economist at First Street, adds that government models are also outdated. They fail to consider the increased moisture capacity of clouds and the resulting heavier rainfall. This backward-looking approach leads to an underestimation of risk, which can have severe financial and physical consequences.
Taking Climate into Account
However, there is a glimmer of hope. Some developers and operators are recognizing the importance of climate considerations in data center design. Digital Realty, for instance, is ensuring its centers have sufficient water for cooling, employing waterless or closed-loop systems. This proactive approach demonstrates a commitment to resilience and long-term sustainability.
Beyond Building Envelopes
While building adaptation is crucial, Porter emphasizes the need to think at a systems level. Developers must understand the infrastructure and community demographics surrounding data centers. Acute climate risk can be mitigated through building adaptations, but a community-wide mitigation process is also essential. This holistic approach ensures that data centers are not only resilient to climate hazards but also integrated into sustainable communities.
Regional Differences and Growing Markets
The study also highlights regional variations in climate risk. The Asia-Pacific region has the highest percentage of data center capacity at risk, with 89%. This is significantly higher than the Americas (50%) and Europe, the Middle East, and Africa (46%). Interestingly, some of the industry's fastest-growing markets, such as Northern Virginia in the U.S., Johor in Malaysia, and Marseille in France, are also among the most exposed.
In contrast, Nordic markets have the lowest climate risk. This disparity underscores the importance of regional climate considerations in data center planning and design.
Conclusion
The climate threat to data centers is a wake-up call for the industry. It's not enough to focus solely on technological advancements; the physical environment in which these centers operate must also be considered. By incorporating climate factors into underwriting and capital allocation decisions, investors can identify resilient markets and avoid mispriced risks. As we navigate the challenges of a changing climate, the data center industry has an opportunity to lead the way in resilience and sustainability.
