A study by First Street, a climate risk analytics firm, reveals that 79% of global data center capacity faces elevated risk from acute climate hazards such as flooding, wildfires, and extreme winds, according to a report released on May 31, 2023. The findings highlight growing concerns over how climate change is disrupting long-term infrastructure planning, with investors urged to adopt forward-looking models to assess risks.
What are the key findings of the study?
The study analyzed 97 global data center markets, finding that 79% of capacity is exposed to acute climate events, while 50% are in regions with chronic climate stress, including extreme heat and drought. These conditions threaten energy efficiency, increase operational costs, and raise insurance and repair expenses. First Street CEO Matthew Eby emphasized that traditional underwriting models, which rely on historical data, fail to account for the accelerating pace of climate change. “The climate is no longer behaving as the historical record would predict,” he said.
Why is climate risk a growing concern for data centers?
Data centers, designed to operate for 20–30 years, face unique challenges as climate patterns shift. Jeremy Porter, First Street’s chief economist, noted that outdated models neglect factors like increased rainfall intensity and prolonged droughts. “Investors who incorporate these factors into underwriting will better identify resilient markets,” Eby said. The report underscores that chronic climate stress, rather than isolated events, poses the most significant long-term threat.
How are companies adapting to climate risks?
Some developers are proactively integrating climate resilience into their designs. Digital Realty, for example, has implemented waterless or closed-loop cooling systems across its 300 global data centers. CEO Andrew Power stated, “We make investments to ensure we have enough water to cool our centers, with no evaporation.” However, experts stress that building-level adaptations alone are insufficient. Porter emphasized the need for systems-level thinking, including infrastructure reliability and community demographics, to mitigate risks effectively.
Which regions are most at risk?
The Asia-Pacific region has the highest exposure, with 89% of data center capacity at risk, followed by the Americas at 50% and Europe, the Middle East, and Africa at 46%. Northern Virginia, Johor (Malaysia), and Marseille (France) are among the fastest-growing markets with significant climate vulnerabilities. In contrast, Nordic regions face the lowest risk, according to the study.
What does this mean for investors and developers?
The report advises investors to move beyond historical data and consider climate projections when evaluating data center locations. “Mispriced risk could lead to costly disruptions,” Eby warned. Developers are encouraged to prioritize markets with robust infrastructure and adaptive designs. As climate change intensifies, the ability to forecast and mitigate risks will become critical for long-term profitability.
For more insights, visit First Street’s website.