With Most Data Centers Not Measuring Carbon Emissions, New SEC Rules Could Be Uphill Battle

The new green disclosure rules the Securities and Exchange Commission released last month 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.

While the SEC’s 500-plus-page proposal for mandated greenhouse gas emissions reporting would have implications across commercial real estate, data centers may face particular scrutiny if the rules are adopted. After all, this is an asset class that measures size in megawatts of power, not square footage. On top of the industry’s enormous thirst for energy, a digital building boom is meaningfully driving up its carbon footprint. 

Experts tell Bisnow that the data center industry is going to have to scramble to provide the data required by regulators and publicly traded tenants. Fewer than half of data center operators currently measure carbon emissions, according to an Uptime Institute survey last year, and fewer are able to provide those metrics to individual tenants. Experts say data center operators may have to play catch up — and fast.

“This will take energy — it’s going to take a considerable amount of effort,” said Christian Beaudoin, managing director for research and strategy at JLL. “The first set of reporting won’t be perfect, but this is the first attempt. If you haven’t done the budget in your house ever it's going to take a while to count up all the receipts.”

Although only public data center providers would have to report their own emissions data if the SEC rules were adopted, the onus lies with data center operators both public and private to provide accurate reporting to publicly traded tenants, including many digital-first companies for whom data centers produce a significant percentage of their overall carbon output.

According to the proposed SEC rules — which, if implemented, would not begin going into effect until 2024 — publicly traded companies would need to include certain environmental impact metrics in their filings with the federal regulator. For data centers, this primarily entails emissions stemming from the thousands of megawatts of energy the industry currently uses across the United States, as well as so-called embedded carbon emitted in the manufacturing of data center equipment. 

Only publicly traded data centers like REITs Equinix and Digital Realty would have to report their own emissions. However, even private data centers will have to take a lead role in helping publicly traded tenants accurately measure the emissions stemming from hosted IT infrastructure. This could cause problems.

Although major players across the data center ecosystem have publicly positioned themselves as leaders in carbon reduction and emissions transparency — such as the net-zero carbon initiatives announced by hyperscalers like Microsoft and Meta — the reality is that the vast majority of operators aren’t close to being able to accurately provide metrics that they or their tenants would have to report to the SEC. Industry think tank Uptime Institute's survey of data center operators last year found that just 33% of them measured carbon emissions at all. 

Rather than measuring emissions, data centers have generally fixated on energy efficiency, particularly a metric called Power Use Effectiveness, said Mat Chamish, JLL’s director of energy and sustainability services. After all, in an industry where power is one of the main costs, energy efficiency is good for margins, not just the environment. Greenhouse gasses and carbon footprint have been an afterthought. 

“I don't think there’s been much attention paid to it,” Chamish said. “Companies have been ranking themselves on PUE, and they’re really not looking at the big picture, which is emissions. You can have a great PUE and be using coal, and you could have terrible PUE and get a bunch of renewable energy. “

So, what will it take for data center operators to meet the proposed SEC reporting requirements for themselves or tenants?

For some data center companies, measuring their total emissions data is an accounting exercise they are equipped to perform. According to Uptime, 82% of data center operators measure their overall power usage. So, for single-tenant facilities, or for users who own their own data centers, acquiring accurate emissions data is just a matter of working with local utilities to understand the carbon footprint of the energy they purchase. 

However, most large providers face a far more complicated set of challenges. A colocation data center with multiple tenants might have to install power metering connected to each tenants’ servers or invest in other hardware solutions. Regardless of how the data is collected, data center owners also have to invest in the software and staff needed for accurate accounting and to report metrics back to tenants. 

When one considers that major data center operators own dozens of facilities with an array of tenant relationships — from multitenant colocation to single-tenant hyperscale campuses, the magnitude of these accounting tasks and the resources required to complete them becomes daunting.

“It’s not that simple to come up with good numbers,” said Jay Dietrich, Uptime Institute’s research director for sustainability. “If you’re an Equinix or a Digital Realty Trust that’s running with more than 200 facilities, there’s a ton of work to collect all that data, make sure its quality is good, develop a central database and then get it out to your tenants. It’s not a trivial effort.”

The data center industry is even less equipped to measure “embedded carbon,” which are emissions stemming from the manufacturing of the equipment they purchase. 

According to Uptime’s Dietrich, the industry usually estimates embedded carbon as 10% of a data center’s emissions from power usage. But, he says, these estimates are likely wildly inaccurate. He estimates that current attempts to gauge embedded carbon emissions for data centers are only accurate within around 30%. 

With a record number of new data centers being built, embedded carbon will remain a growing segment of the industry’s carbon footprint, experts say. Microsoft, despite well-publicized efforts to bring its net emissions to zero, actually saw its overall carbon footprint rise last year, with the increase mainly attributed to its aggressive build-out of data centers to support its cloud and gaming services. 

Some companies have implemented programs to help tenants report embedded carbon and other environmental impacts from data center equipment. Aligned Data Centers announced this week that it is implementing a proprietary software system called OriginMark that helps clients monitor the carbon footprint of data center equipment across the company’s portfolio.

“The technology will provide Aligned and its customers a more transparent and granular view of their embodied carbon footprint by tracing the complete lifecycle of data center equipment and devices as well as identifying material recovery and recycling options,” the company said in a press release. Aligned declined to participate in an interview to answer further questions. 

Experts who spoke with Bisnow questioned the actual efficacy and value provided by such initiatives. Uptime’s Dietrich is one of the skeptics, saying that these platforms tend to be a marketing tactic with questionable actual value for tenants. 

“There's a variety of platforms out there that will let you do that tracking, but for me it’s unclear what you gain from the enormous pain of managing that data set,” he said. “The data’s just a black box unless you do your own quality control and due diligence. I’d rather take those same resources and put them towards design or something to help operate more efficiently.”

Still, experts who spoke with Bisnow shared the belief that the proposed SEC rules, if adopted, would accelerate investment across the data center industry to accurately track emissions. The fact that so few operators have kept these metrics has been a problem of will, not know-how, according to Dietrich. 

“The needle's about to move because it has to,” he said. “The basic infrastructure is there, and people understand that — it’s not a secret — but there just hasn’t been the will to pull the trigger.”