Data Center Industry Pushes Back On SEC's 'Unworkable' Green Disclosure Rules

A trade group representing major data center operators and their largest tenants is asking for significant changes to the Securities and Exchange Commission's proposed climate reporting rules.

The Information Technology Industry Council submitted a lengthy series of recommendations last week in response to a pending policy requiring public companies to disclose carbon emissions and other environmental impacts along with their financial filings.

ITI has data center providers Equinix and Digital Realty as members, plus the largest data center users including tech giants Amazon and Meta. While expressing general support for the new regulations, ITI directed heavy criticism at rules requiring companies to report emissions from their supply chain and to calculate costs associated with increased climate risk.

Calling aspects of the policy “overly burdensome and unworkable,” the group said changes are necessary to give data center operators and others in the IT sector more time and more tools to comply with the new rules and to protect companies from potential lawsuits. 

“We have significant concerns regarding key aspects of the proposed rules,” ITI wrote in a letter filed June 17 with the SEC. “Critical changes to these provisions are needed to ensure the final requirements are reasonably workable for registrants and ultimately further the SEC’s stated goals.”

Bryan McGannon, director of policy and programs at US SIF, a leading advocacy group for sustainable investment, said he opposes some of the industry's proposed changes, but he doesn’t believe the criticisms leveled in ITI’s letter are an attempt to wriggle away from oversight. Instead, he sees them as an attempt to avoid litigation when reported emissions figures or projections turn out to be inaccurate.

“Their big fear is being sued,” he said. “Anytime you have new disclosures, there’s a lot of fear that this is going to expose them to litigation, so they’re trying to protect against getting sued for the information that they are going to make public.”

The new green disclosure rules, slated to go into effect in 2024, could present a major challenge for a data center industry that — despite its massive power consumption — has a long way to go to fully track its carbon footprint, as Bisnow previously reported.

According to a 2021 Uptime Institute survey, fewer than half of data center operators currently measure carbon emissions, and insiders say the industry is going to have to scramble to provide the metrics required by regulators. Although only publicly traded data center providers like Equinix and Digital Realty would have to report their own emissions, even private operators will have to take a lead role in helping publicly traded tenants accurately measure the emissions tied to their hosted IT infrastructure. 

ITI’s chief criticisms of the pending SEC rules target a set of regulations that experts say could be particularly challenging for the data center industry: requirements that many companies report what are known as Scope 3 emissions.

A company’s carbon footprint is typically measured in three categories, with Scope 1 entailing greenhouse gasses produced directly by a company’s day-to-day operations and Scope 2 referring to the carbon footprint of the electricity the company purchases. Scope 3 is more complicated and harder to measure. It includes greenhouse gasses produced in a company’s supply chain and those created as a result of using the company’s products or services.

For a data center, the emissions stemming from the manufacture and delivery of a generator or other piece of critical equipment would fall clearly within Scope 3. But ITI and industry experts say that much of what could count toward this metric is far murkier, and that clearer, industry-specific language in the SEC regulations is necessary to make the law workable and to ensure well-intentioned operators don’t find themselves accidentally out of compliance.

“It’s not a shock that companies are pushing back on Scope 3; everyone knew that was the battleground,” US SIF's McGannon said.  

Uptime Institute Research Director of Sustainability Jay Dietrich said the power used by tenants in a colocation data center is a potential source of confusion. While the SEC guidelines imply this should be counted as Scope 3, that runs counter to the established practice within the data center industry. 

“Many colocation providers are reporting everything as Scope 2, so this has to sort itself out,” he told Bisnow in April. “There doesn’t seem to be anything in the regulations where the SEC has defined exactly how you’re supposed to do it."

In its letter to the SEC, ITI argues that the regulator should allow companies an additional two years to phase in Scope 3 reporting. Even with greater clarity on proper carbon accounting, the group writes, it is unreasonable to ask companies to measure emissions from a vast international supply chain without providing them with the tools and resources to do the job accurately. 

“Many of our members purchase very small amounts of material from a large number of global suppliers, often concentrated in regions where disclosure of data is not required or encouraged,” the group wrote. “These suppliers do not have the resources or staff to prepare [greenhouse gas] inventories, and our members have limited leverage to require this data.”

ITI is also pushing for changes to provisions in the SEC guidelines that require companies to quantify climate risks to their operations and the associated costs. The rules ask companies to project future climate impacts, such as damage from flooding or electricity price hikes due to green energy mandates.

ITI says these requirements are “overly broad” and require companies to make projections in which they have little confidence.

Dietrich said the complicated tangle of relationships between colocations providers, their tenants and cloud providers makes coordinating this kind of risk analysis extremely difficult, diminishing the accuracy and value of data that is likely to be highly inaccurate to begin with. 

“It’s going to be messy, and it’s going to be incredibly speculative,” he said.