Squaring data demand with sustainability limitations
Unlocking the potential of AI will require a breathtaking ramp-up in data storage and movement – the world is projected to generate, capture, and consume more than 660 zettabytes of data annually by 2030. That’s over ten times the volume generated in 2020 and three times the total amount of data that has ever been created.
Many investors are therefore eyeing opportunities linked to the data centre boom. According to McKinsey, global investment in data centre infrastructure could reach US$6.7 trillion by 2030.
Some of the data centres being planned are vast - the facility Meta is aiming to build in Louisiana, USA, will cover roughly six square miles – nearly the size of Manhattan.
Building infrastructure at this scale presents substantial challenges. Beyond finding skilled workers and navigating complex planning systems, data centres demand enormous amounts of electricity, often from aging grids not designed for such loads. They are also water intensive. Server heat requires cooling, and while more facilities are adopting closed-loop water systems, estimates suggest that hyperscale centres can consume 5 million gallons of water a day. That would mean the hyperscale data centres in the US are roughly using the same daily water footprint as three New Yorks, and a quarter of all US industrial water use.
Our analysis suggests that data centre development can be beneficial to the communities they are in, for example, through increasing digital connectivity and repurposing redundant industrial space. However, the pressure data centres can place on local resources, combined with the noise they generate, the land footprint they require, and the increase in utility bills that some are believed to have driven, has led to a rise in community backlash.
Data Center Watch has identified $64 billion in US projects that have been blocked or delayed amid local opposition. In Ireland, where data centres already consume around 20% of the nation’s electricity, authorities have restricted new developments, and the Netherlands has a data centre moratorium in place until at least 2030. Google’s proposed data centre in Santiago, Chile, was sent back to the drawing board due to water usage concerns, while Microsoft cancelled a 244-acre Wisconsin campus - “based on community feedback we heard, we have chosen not to move forward with this site.”
The success of apparently straightforward investment opportunities often depends on a much wider range of factors than are typically considered, spanning a range of stakeholder and environmental considerations.
At Schroders, we have long considered the management of material stakeholders to be a critical consideration. When considering data centre investments, we carry out analysis and engagements to determine whether, for example, developers are monitoring their community impacts, maintaining stakeholder grievance processes, operating community engagement programmes, and conducting socio-economic impact assessments of construction projects.
Our Schroders Capital Infrastructure business has been considering a potential data centre investment in Ireland, which demonstrates the extent of stakeholder engagement that can be carried out as part of the development process.
Before planning submission, the developer ran multiple open days, actively inviting those likely to oppose such developments. They also engaged with relevant policy consultations, regulators, system operators, planning authorities, and government departments. The aim was to ensure key stakeholders understood and supported the project from the outset, and that their core objectives were built into the design.
As custodians of our clients’ money, we need to consider a full spectrum of risks the companies we invest in can be exposed to. With data centres competing directly with communities for land, water and energy, gaining a social license to operate has become a central challenge for developers. Projects that fail to align with policy direction and community priorities risk either not being consented to or becoming obsolete. Confronting these dimensions will be vital as the world drives forward its AI revolution.
Any reference to regions/ countries/ sectors/ stocks/ securities is for illustrative purposes only and not a recommendation to buy or sell any financial instruments.
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