Investors Overlook Climate Risks in Data Centre Sector, Report Says

A recent report by Jupiter Intelligence highlights significant climate risks looming over the world's data centres, with potential annual losses reaching approximately $4.4 billion. The detailed analysis indicates that many investors are not prioritizing these vulnerabilities in their financial assessments.

Assessing the Risk

Wahib Ghazni, the report's author, points out that lenders financing data centres in emerging markets face greater exposure than those in developed regions. This imbalance raises critical concerns, especially as the climate crisis intensifies.

High-Risk Locations

A study conducted earlier this year examined over 2,600 proposed data centres globally and flagged that more than 150 of these projects are situated in areas at high risk from climate hazards. Key threats to these facilities include:

• Coastal flooding
• Extreme heat
• River flooding

Furthermore, a separate analysis from Schneider Electric Research Institute warned that approximately 38% of the global data centre value is at risk from climate change impacts, highlighting that these figures will escalate without significant adaptation efforts.

Vulnerabilities and Insurances

The Jupiter Intelligence report indicates that a staggering 61% of risk is related to IT equipment housed within these facilities, rather than the buildings themselves. This raises the troubling issue that many of these climate impacts remain uninsured.

Typically, funding for such infrastructure tends to be short-term, while the climate-related costs are likely to manifest over longer time frames. This incongruity puts many investments at risk.

Focus on China

The report’s analysis of over 14,000 operational data centres reveals specific vulnerabilities in China, which faces low levels of insurance coverage paired with high flood risk. Astonishingly, China and Hong Kong account for 17% of the world’s data centre value but bear a staggering 49% of potential climate losses. In comparison, North America holds 44% of the data centre value yet only faces 17% of the potential losses.

According to Ghazni, the geographical challenges in China are pronounced, as many critical data centre locations are nestled within three major low-lying deltas that are susceptible to flooding during monsoon rains and typhoons.

“The huge problem in China is pure geography,” said Ghazni.

In conclusion, the rising threat of climate change poses a significant risk to the data centre sector. As investors continue to overlook these factors, the potential for substantial financial losses looms large in the future.