Perspective

Why data centres aren’t as bad for the environment as you may think


Data centres are often criticised for their carbon intensity and the amount of energy they consume. With the exponential growth of the internet in recent years, data centres are now a fast-growing industry.

Less than five years ago, articles in the media were warning that digital infrastructure, such as data centres, could consume 20% of global energy by 2025. This was easy to believe against the backdrop of rapid growth in connectivity that was taking place.

Projections from the International Energy Agency (IEA) suggest that internet traffic will double between 2019 and 2022, with the Covid-19 pandemic adding to this trend through greater demand from areas such as online gaming, video conferencing and streaming.

So, with this exponential growth in all things digital and data related, it is still easy to believe that digital infrastructure might be one of the key consumers of global energy. However, the reality is somewhat different from the dire predictions.

Many would be surprised to hear that the data centre industry only consumed 1% of global energy in 2020, according to figures from the IEA. This is a significantly lower figure than the relatively recent predictions of 20% of global energy. And while data consumption has grown rapidly over the past decade, the amount of power that data centres consume has remained largely static.

20211125_hk_eng_chart_1.jpg

The main reason why these predictions were so wrong was the innovation that took place in three key areas. Firstly, the operation and construction of data centres; secondly, the transferral of private data to the cloud; and finally, the design of IT equipment. By analysing each of these areas in more detail it is easier to understand why energy consumption by data centres has managed to remain static despite the data boom.

1. Data centres are operated more efficiently

Some specialist data centre operators have developed a number of tools to maximise the efficiency of data centres that they manage. These companies are increasingly setting the global standards for construction, cooling, power optimisation and security.

2. Structural shift to the cloud

Previously, companies ran their data servers from their own offices, often locating them in the basements. However, companies have now realised that they can cut costs and improve operational efficiency by moving their data to professionally run data centres.

The best run data centres will use artificial intelligence to establish precisely where and when power and cooling is needed. Therefore, it is an easy decision for companies to make and it has been estimated that businesses can reduce their energy usage by 30% by using a professionally managed cloud service.

3. Innovative IT equipment

New advances in artificial intelligence and IT equipment, such as servers, has resulted in data consumption having a far smaller carbon footprint than in the past.  

Despite the progress, more needs to be done

For the industry to continue to grow in a sustainable way, data centre companies must actively work towards having a net zero impact. Within the industry, there are leaders and laggards. Although there is a lack of standardised reporting metrics to effectively compare companies, there is one metric that is commonly cited. 

Power usage effectiveness (PUE) is a measure of energy efficiency and is calculated as the ratio of total electricity consumed by a data centre to the electricity delivered to the computer infrastructure to power servers. A lower PUE indicates greater efficiency, with the industry average at 1.59 according to the Uptime Institute’s global data centre survey in 2020.

Data centres continue to be mission critical

It is important to look beyond the negative headlines and remember that data centres continue to be a mission critical sector. Investing in companies that are making a positive impact within this sector is crucial to creating a sustainable digital future.

Important Information
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.