Decoding data centers: Sustainability due diligence across the value chain

The rapid commercialization of artificial intelligence is creating new environmental risk factors and opportunities for businesses.

Environmental performance is core to financial performance. Weak oversight of environmental risk exposes capital to cost overruns, asset stranding, regulatory intervention, and reputational risk, while adopting best practices can build value and unlock better performance.

For investors, AI is an infrastructure story playing out across many sectors, geographies, and asset classes. Beyond the competitive positioning of the hyperscale technology firms, investors need to understand the full data center ecosystem — including utilities, real estate, fuel supplies and chip manufacturing.

A report co-authored by Environmental Defense Fund and Nuveen helps investors ask the right due diligence questions about data center environmental and social impacts to manage these material financial factors.

What’s in the report

• 75+ investor engagement questions for tech companies, utilities, chip manufacturers and more
• Emerging approaches for managing data center energy, water and local impacts
• An overview of existing metrics & disclosures
• Asset class-specific considerations for engagement

Environmental risk factors

Energy

Data center energy consumption is driving soaring demand for electricity generation, reshaping the power system, increasing carbon emissions, and pressuring electricity prices. Prioritizing efficiency, maximizing clean energy, and other preferred practices can help avoid project development delays, higher operating costs, and asset value impairment.

Water

Water usage for data center cooling and power generation can increase local water stress and harm water quality. For investors, unmanaged water risk can translate into community opposition, permitting delays, operating restrictions, and higher costs for alternative water supply or cooling technologies.

Local impacts

Communities hosting data centers often experience heavy truck traffic, noise pollution, increased air pollution, land-use conflicts, and higher utility bills. Data center operators, utilities, and others that meaningfully engage with communities can improve project outcomes and support asset value, while those that do not risk losing the social license to operate.

Key insights 

• A handful of technology companies play crucial roles in the data center ecosystem, but many players have agency in mitigating environmental risks.
• Efficiency is key to managing energy demand across the AI value chain, especially with respect to chips.
• Issues calling for increased investor attention include the additionality of data center clean energy supply and methane emissions from natural gas.