Stratospheric growth within the data centre sector combined with increased legislation, leads Environmental Resources Management (ERM)’s Emma Fryer to believe that data centres are facing a crunch point, but she believes there could be a silver lining.
January 2024 looms in the diary ominously for those in the data centre world as the EU’s corporate sustainability reporting directive comes into force. To make businesses more accountable for their carbon footprint, it will become mandatory for operators to disclose data relating to their impact on the environment.
In her new role as partner at ERM, Fryer is responsible for helping technology clients improve their sustainability credentials in advance of the legislation. She describes the move to ERM as allowing her to get ‘more under the bonnet.’
“The move has been incredibly interesting from a learning perspective because you get greater insight into the nuts and bolts of compliance of sustainability, of ESG. I think it's much more about the level of detail that's required in terms of the obligations that are imposed and the disclosures that are necessary. I'm still doing quite a lot in terms of looking at the regulatory landscape, which I find quite interesting.”
“The main roadblocks are the speed and ambition of developments in Europe, particularly in sustainability, which is very challenging because operators just can't keep pace. They tend to be very thinly resourced within data centres in particular. They need to know ‘how is it going to affect me? How is it going to affect my build time lines?'
“Because these regulations are coming in so fast if you're not careful, you could be left with a site that's going to be built several years down the line in breach of a regulation that didn't exist when you started building it, or even left with stranded assets. That's a huge worry for operators, the thought process is often – ‘where do I begin? Does this affect me?’"
Changing legislation
2014 was a notable milestone for data centres in terms of their environmental impact with the implementation of the climate change agreement. The agreement offered incentives in the form of discounted carbon taxes in exchange for implementing energy efficient measures. Fryer was instrumental in implementing the legislation.
“The climate change agreement in the UK is an interesting sort of double-edged sword. The government would give fairly modest tax energy tax concessions to data centre operators provided they meet the efficiency targets. However, if a polluter pays taxation on energy consumption, that tax takes away the funds they need to invest in energy efficiency measures. So, it's very hard for those companies to find the money to see those particularly longer term and higher capital expenditure projects that would deliver real savings.
“The idea is to say, OK, well, if you meet these efficiency targets, we will give you this tax concession and it's that funding companies need to use to make those investments.
“In the UK we are working at a disadvantage compared to other countries because our carbon taxation is higher, and you can end up with carbon leaking. So, the climate change agreement is also there to try and stop the carbon leakage where you would move activity to other countries with lower ambition requirements. It was really interesting to work with the government because they hadn't even really considered that data centres were industrial.”
Creating transparency
The new corporate sustainability reporting directive will see businesses forced to report data to a level never seen before. Companies must provide evidence of every claim and external verification is required.
Fryer believes that whilst the directive seems daunting for operators, the increase in transparency will go some way to increasing awareness of the critical role data centres play in the economy’s infrastructure.
“I think we will see big changes in terms of transparency. In the past data centres have been quite secretive and now they must be much more transparent. Because they're going to be legally obliged to be so, and they'll need to create some clarity around their energy. They'll need to be open about any green claims they make, and make sure that they are substantiated. So, there's a whole new level of transparency, disclosure and reporting which I think will take the sector a while to get used to.
“Greater transparency is a positive development for the industry because I think the tendency of data centres is to be very secretive about where they are, what they're doing and of course they are hidden away behind these big walls. They are keeping the economy going, so there's a reason to create greater public awareness. I believe that is a good thing for the sector because then there is not that sense of anxiety about what these places are doing because we know what they're doing in generic terms.
“I’m focusing on ensuring data centre operators are equipped and ready for the changes in legislation - in terms of scope, disclosure, transparency and communication. Because the regulatory landscape is changing massively in Europe and the applications run very deep. There will be a change for operators, not just in terms of the standards they must comply with, but also a new level of disclosure looking into the value chain, both down the supply chain and into the customer chain. And the obligations on them to sort of join all the dots of this through instruments like the corporate sustainability reporting directive, which is really a game changer in legislation because it's a tool or a legislative instrument, that pulls together everything as connective tissue.
“It is a hard thing to get your head around if you're used to dealing with traditional legislative instruments. It also coincides with incredibly ambitious growth plans within the sector.
“It creates a real crunch point for operators, I think. It is a very interesting time.”
