Global data center capacity faces significant climate-related risks, with a substantial portion exposed to acute and chronic climate hazards that could disrupt operations, increase costs, and impact long-term viability. A new study reveals that 79% of global data center capacity is at elevated risk from severe weather events like flooding, extreme winds, and wildfires. Furthermore, over half of all data centers worldwide operate in markets susceptible to chronic climate stress, such as extreme heat and drought, which directly affect energy efficiency and operational expenses.
This assessment, conducted by First Street, a climate risk analytics firm, examined 97 global data center markets. The findings underscore a critical disconnect between traditional risk assessment methodologies and the evolving climate landscape. “Most underwriting for real assets still uses historical data, but the climate is no longer behaving the way the historical record would predict,” stated First Street CEO Matthew Eby. “As heat, drought, and water stress increase, outdated models simply don’t offer a complete view of risk anymore.”
The study highlights that while acute events can cause immediate damage, the insidious, long-term effects of chronic climate stress pose a more profound threat to both the physical infrastructure and the financial health of data center operations. Jeremy Porter, chief economist at First Street, emphasized that current backward-looking models fail to adequately account for climate change and its multifaceted risks. “Ultimately, it’s just something that we’re underestimating,” he noted, pointing out that government models, which often rely on past precipitation levels, do not incorporate the warming planet’s impact on rainfall patterns.
This presents a significant challenge for investors and developers. Data centers are typically designed for a 20- to 30-year lifespan, and if climate impacts are not factored into initial investment and capital allocation decisions, operators risk mispriced risk and exposure to unsuitable markets. “Investors who incorporate these factors into underwriting and capital allocation decisions will be better positioned to identify resilient markets and avoid mispriced risk,” Eby advised.
Recognizing these challenges, some industry players are proactively integrating climate resilience into their strategies. Digital Realty, for example, is prioritizing water conservation in its data center operations. “Almost all of our data centers today, 300 around the world, the global portfolio, are either a waterless system or closed loop water,” explained Andrew Power, CEO of Digital Realty. “So think of it as there’s no evaporation. We make the investments and elect to do that.”
Beyond building resilience, Porter stresses the importance of a “systems-level thinking” that extends beyond the physical structure of a data center to encompass its surrounding infrastructure and community. This includes evaluating access to power, site ingress and egress, and the broader community’s vulnerability to climate impacts. While building adaptation can mitigate acute risks, community-level mitigation is crucial for long-term operational stability.
Geographically, the Asia-Pacific region faces the highest climate risk, with 89% of its data center capacity exposed. This is followed by the Americas at 50% and Europe, the Middle East, and Africa at 46%. Notably, some of the industry’s most dynamic growth markets, including Northern Virginia in the U.S., Johor in Malaysia, and Marseille in France, are also among the most exposed. The study also identified that the top 10 global markets with acute climate risk are predominantly in the U.S., with wind and flood risks being the primary concerns. While the U.S. exhibits lower chronic climate risk compared to other regions, the concentration of capacity in vulnerable areas warrants significant attention.
As the demand for data processing continues to surge, driven by advancements in artificial intelligence and cloud computing, the imperative to build and operate data centers in a climate-resilient manner will only intensify. The insights from this study serve as a critical call to action for the industry to adapt its planning and investment strategies to navigate the increasingly complex and dynamic climate future.
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