A huge slice of global data center capacity faces elevated risk to acute climate hazards, a study released Thursday shows.
Those acute hazards, which hang over 79% of capacity, include severe climate-induced events such as flooding, extreme winds and wildfires that can disrupt operations, increase downtime and drive insurance and repair costs, according to the report by First Street, a climate risk analytics firm.
First Street looked at 97 global data center markets in the report.
“Most underwriting for real assets still uses historical data, but the climate is no longer behaving the way the historical record would predict,” First Street CEO Matthew Eby said in a release. “As heat, drought, and water stress increase, outdated models simply don’t offer a complete view of risk anymore.”
The study also found that just over half of all data centers globally are in markets exposed to chronic climate stress, such as extreme heat and drought, that hit energy efficiency and increase costs.
While risk can be heightened by exposure to singular climate-driven events, such as strong hurricanes, it is the chronic effects of climate change that can cause the most damage, both physically and financially.
Jeremy Porter, chief economist at First Street, said the backward-looking models are not correcting for climate and for all the sources of risk.
“Ultimately, it’s just something that we’re underestimating,” he said.
Porter pointed to government models that he says are outdated because they look at past levels of precipitation and do not factor in the effects of climate change. As the Earth warms, clouds hold more moisture and rainfall becomes heavier.
The danger, according to the study’s findings, is that investors may be looking at traditional metrics when developing data centers and not taking into account that climate could impact long-term operating conditions. Data centers are typically expected to be in operation for 20 to 30 years.
“Investors who incorporate these factors into underwriting and capital allocation decisions will be better positioned to identify resilient markets and avoid mispriced risk,” Eby said in a release.
Some developers and operators are, however, taking climate into account as they design data centers.
Digital Realty, for instance, is working to make sure it has enough water to cool its centers.
“Almost all of our data centers today, 300 around the world, the global portfolio, are either a waterless system or closed loop water,” said Andrew Power, CEO of Digital Realty on the Property Play podcast earlier this year.“So think of it as there’s no evaporation. We make the investments and elect to do that.”
While developers can implement resilient measures for building envelopes — the physical barrier between a building’s interior and the outside — to protect structures from severe weather events, it’s the actual systems that connect to the data centers that are most important in terms of understanding both internal and external vulnerabilities to climate risk, according to Porter.
He said developers need to look beyond building and parcel-specific risk to a systems-level thinking. That means understanding infrastructure and community demographics.
“Acute climate risk can be mitigated with building adaptation, so that, that’s not a huge issue. Then you start to think about the system, though, you start to think about the infrastructure, the egress, the access to the site, power access. There is a building mitigation process, but then there’s a community mitigation process,” he said.
Some areas are more prone to climate risk than others, the study found.
The Asia-Pacific region has 89% of its data center capacity at risk, the highest percentage of any geographic area, according to First Street. That compares with 50% exposure in the Americas and 46% in Europe, the Middle East and Africa.
Some of the industry’s fastest-growing markets are also the most exposed, the study found. That includes Northern Virginia in the U.S., as well as Johor in Malaysia and Marseille, France. Nordic markets had the lowest climate risk.
“The top 10 markets with acute climate risk across the globe, most of them are in the U.S. Most of them have wind and flood risk,” said Porter, adding that the U.S. does not see as much chronic climate risk as the rest of the world.
