With the increasing shift toward off-site data solutions, many organizations are finding themselves at the crossroads of data management and sustainability. A growing number of businesses are opting for third-party data centers instead of managing their own, drawn by the allure of scalability and cost-efficiency. This trend has become more pronounced as enterprises build data-intensive applications, such as those powering artificial intelligence and machine learning. But as appealing as this arrangement may be, experts warn of significant risks, particularly surrounding Environmental, Social, and Governance (ESG) reporting.
Scott Lane, founder and CEO of Speeki, illuminates the potential pitfalls of adopting a casual approach to data center outsourcing. "Regardless of sector, specialty, or location, organizations across the globe are ditching the traditional in-house data center in favor of off-site data solutions," says Lane. This trend has sparked concerns as third-party data centers must meet strict sustainability and ESG standards to align with corporate values.
While outsourcing to data centers can streamline operations, it raises substantial challenges for ESG compliance. Lane argues, "With sustainability claims unchecked and key ESG metrics difficult to attain, third-party data centers have the potential to ravage corporate ESG and sustainability goals, slashing reputations." Corporate leaders must increase their transparency with both these providers and their stakeholders to avoid potential disasters.
The expansive energy consumption of data centers poses unique challenges to corporate sustainability. Current projections suggest energy usage will soar by up to 160 percent, largely driven by rising demands from AI technologies. Coupled with staggering water consumption—over 300,000 gallons per day per facility—companies can no longer afford to look past the operational impacts of their data centers.
Lane emphasizes the importance of aligning ESG goals with the environmental footprint of data centers: "ESG goals and timelines must be fully informed by the reality of the impact data centers have on the environment." This means companies need to cultivate transparency and visibility when it pertains to the operations of their third-party data centers. These facilities cannot be regarded as mere service providers; comprehensive insight is necessary to inform accurate ESG reporting.
Without thorough knowledge of their data centers' operational metrics—including energy usage and emissions—firms may find themselves unable to incorporate this data effectively within their broader ESG reports. Ignoring this aspect risks portraying the company as misleading, which can undermine stakeholder trust and lead to reputational damage.
On top of the reputational stakes, businesses face increasingly stringent regulatory requirements for ESG reporting. Scott Lane stakes his claim, noting, "With governments worldwide implementing mandatory ESG requirements, corporations can’t afford to take a half-baked approach to ESG and sustainability reporting." This means ignoring data center impacts could have serious legal ramifications.
To combat these risks, Lane advocates for adopting comprehensive data-sharing agreements with third-party data centers. This way, businesses can access information on energy consumption, carbon emissions, e-waste management, and water usage. Regular internal audits must follow to evaluate data’s impact on overall sustainability strategies and targets.
Importantly, Lane highlights the need for companies to look beyond the environmental metrics of their data centers and embrace the full scope of ESG factors. Assessing how materials are procured and how workers are treated within international supply chains must also be part of these conversations. Perhaps the most significant challenge is the reality of remaining competitive against the backdrop of this transition to data-centric operations.
While many businesses are reliant on data centers, staying competitive means carefully evaluating data center usage to prevent hindrances to key sustainability targets. Companies should actively seek providers demonstrating commitment to sustainable practices—those utilizing renewable energy sources or investing heavily in eco-friendly cooling technologies.
But what if such alternatives aren't feasible? Lane proposes thinking creatively about reducing overall impact through internal operations or other suppliers, stressing the urgency to align digital supply chains with broader ESG frameworks. It’s not enough to just aim for compliance; proactive measures can lead the way toward sustainable transformation.
It’s undeniable—data centers have significant environmental footprints, and there are pressing truths businesses must confront. While many companies are striving to mitigate environmental impacts, more work lies ahead. ESG executives need complete awareness of how their data centers operate and what environmental consequences arise from them. Understanding the metrics behind third-party data centers is not only advantageous; it is imperative for effective corporate governance.
Indeed, as Lane succinctly puts it, "There are some hard truths we need to face about the way data centers operate." Transparency, accurate reporting, and proactive management are not just best practices—they're necessary steps for fostering meaningful corporate responsibility.
The drive for sustainability is not just about compliance, but rather achieving genuine stewardship over environmental and social impacts. This integration of sustainability not only enhances corporate reputation but also safeguards long-term viability. The onus lies on ESG leaders to lead the charge toward responsible third-party data center use, ensuring both operational capabilities and environmental responsibilities coexist harmoniously.
