Guest Post: Third-Party Data Centers are Corporate ESG’s Ticking Time Bomb
By: Scott Lane, Founder & CEO of Speeki
Fueled by the scramble for AI adoption, the market for data center outsourcing has never been stronger. And as enterprises in every sector continue to build third-party data centers into their digital infrastructure, the industry is expected to grow at a CAGR of 5.04% between 2024 and 2033 – taking it up to an estimated value of over USD 200 billion (Precedence Research).
But despite their growing ubiquity, third-party data centers represent an uncharted ESG and sustainability risk. With a lack of visibility over data center operations, businesses are at risk of wading deep into murky ESG waters. ESG leaders must act now to gain full visibility over their third-party data center providers – or risk undermining their corporate commitments in this space altogether.
As businesses have pivoted to cloud and edge computing, and begun to fully integrate LLM-powered AI tools into the core of their operations, the uptake in data center outsourcing has spiked (Research and Markets). Providing security, scalability, and a cost-effective alternative to an in-house data center, it’s easy to see why so many businesses are making the switch to off-site data centers.
But for all their merits, third-party data centers can quickly form a big, blank space in corporate ESG and sustainability reports. As they hand over data center operations to a third party, ESG leaders find themselves forgoing visibility over their computing supply chain, losing sight of key ESG metrics. Without vital facts and figures, such as energy consumption or carbon output, ESG leaders are unable to accurately report on the ESG impact of their third-party data centers.
With their numbers skewed, and the full environmental impact of their chosen data center a mystery, businesses cannot honestly or accurately report on their corporate ESG and sustainability commitments.
It’s vital that corporate ESG leaders act now to gain visibility over the management and operation of their third-party data centers. For as long as the ESG impact of their third-party data center is unaccounted for, businesses risk torpedoing their ESG and sustainability credentials, their credibility and honesty undermined by this glaring blank space in their sustainability reports.
The importance of complete and comprehensive ESG and sustainability reporting cannot be understated. The high bar set by recent reporting requirements like the European Union’s CSRD means its crucial for businesses to have full visibility over all corners of their supply chain – including their digital infrastructure. Beyond legal considerations, visibility over data center operations is important for the business itself, as they set out internal sustainability policies and draw up timeframes for their short and long-term ESG goals.
To gain visibility, ESG leaders need to make use of all the tools at their disposal – starting with carrying out a comprehensive audit of their chosen data center partner. Enterprises mustn’t take the risk of accepting sustainability claims at face value.
By carrying out a full sustainability audit, taking note of key ESG metrics, ESG leaders can verify these claims. Or, if the audit reveals any discrepancies, they can hold the data center accountable or switch to a more sustainable provider.
ESG leaders need a long-term perspective when it comes to their third-party data center operators. That is, how can they ensure they can continue to monitor the data center’s key ESG metrics in the coming weeks, months, and years?
By putting in place a long-term data-sharing agreement with their chosen data center operator, ESG leaders will take a decisive step towards sustained visibility. Whether via a monthly or quarterly report, companies will receive a steady stream of sustainability and operational data.
Not only will this cut their workload in half, reducing the need for constant audits, but it will help companies stay on top of ESG reporting, identify any sustainability pitfalls, and work side-by-side with their operator to overcome any concerning trends or statistics.
Research and collaboration should also be built into corporate ESG’s approach to third-party data centers. ESG leaders should expend effort to build up an overview of the data center industry, whether by hiring or consulting an expert, to paint a complete picture of industry standards.
This will allow companies to partner with a third-party data center provider that best aligns with their ESG values while better identifying any ESG and sustainability shortcomings.
No matter what approach ESG leaders decide to take when it comes to reporting on the sustainable impact of their third-party data centers, one unassailable truth remains: they must act now, or risk undermining the company’s ESG credibility.
The reliance on third-party data centers spans regions and sectors, from healthcare to finance, Europe to the Middle East. And as businesses continue to build AI into the bones of their corporate operations, the prevalence of data center outsourcing will only increase. As third-party data centers form the foundations of corporate digital infrastructures, companies will be left with a gaping black hole on their ESG reports – unless they take action to gain visibility now.