As scrutiny grows over the financial sustainability of artificial intelligence (AI) business models, the associated climate and nature risks are becoming increasingly material to investors. This insights piece explores how rapid AI-driven data centre expansion is reshaping sustainability considerations. It highlights the need for a holistic, integrated investor evaluation that includes decarbonisation, nature and climate resilience.
Rapid AI adoption has fuelled substantial investment in data centres and increases in the share prices of associated technology companies. For investors focused on climate risks within their portfolios, the technology sector has historically been viewed as one where growth comes with relatively modest environmental impact.
However, the scale of AI-driven data centre growth – combined with emerging evidence of limited paid usage and rising costs – has prompted questions about the long-term viability of large-scale data centre investments. Given the scale of market capitalisation involved, the prominence of these companies within “sustainable” funds, and growing allocation in private markets through real estate and infrastructure funds, these issues are highly material to many investors.
In a global context, the direct climate impact of AI remains relatively small. The International Energy Agency (IEA) estimates emissions from electricity generation for data centres accounted for approximately 180 million tonnes (Mt) of CO2 in 2024 – just 0.5% of energy-related CO2 emissions. Even under high-growth scenarios – where AI‑optimised data centre electricity demand more than doubles by 2030 and nearly half of the additional demand is met by fossil fuels – emissions would only rise to around 0.8% of current global energy-related emissions.
This relatively modest global footprint may be further obscured by how investors assess emissions in their portfolios. Most data centre-related emissions are indirect (typically scope 2) and inconsistently disclosed. Intensity-based methodologies can also materially dilute reported impacts due to company size.
Yet this global view masks significant concentration among a handful of large technology firms.
Meta and Google report combined scope 1 and 2 (location based) emissions of 6 MtCO2 and 11.4 MtCO2, respectively, in 2024 – levels comparable to those of major mining companies. If these emissions were to double by 2030, they would be well within the range of operational emissions of oil and gas majors.
There is also the symbolic and systemic impact. New fossil fuel-based power capacity being built or reopened to meet data centre demand risks locking in carbon emissions for decades. This expansion is already contributing to both technology companies and power suppliers diluting emissions commitments.
Some firms, such as Microsoft, have publicly acknowledged difficulties in meeting climate targets due to the rapid expansion of AI workloads. At the same time, some US power utilities (such as NextEra and Duke Energy) have scaled back their emissions commitments, setting an unhelpful precedent for others navigating the transition.
To minimise the reported impact of their activities, some technology companies are also seeking to weaken scope 2 reporting requirements, according to InfluenceMap analysis – changes that risk undermining company-level credibility and emissions reporting more broadly.
Escalating water consumption – primarily for server cooling – is a growing concern.
In 2023, Google reported withdrawing 37 billion litres of water for its data centres, with 80% consumed through evaporation. This exceeds the 24 billion litres used across PepsiCo’s global operations.
Annual water use by US data centres is expected to at least double, reaching between 150 and 280 billion litres by 2028. This issue is aggravated by the fact that two-thirds of US data centres built or under construction since 2022 are in areas of high water stress.
Beyond impacts on communities and ecosystems, water scarcity is already affecting data centre operations. In 2024, Google faced partial revocation of planning permission for a Chilean data centre due to water usage concerns.
Physical climate risks increasingly threaten data centres’ operational resilience and financial stability. These include property loss and damage, operational disruption, and increased cooling and input costs.
At the same time, they are also hubs for resilience innovation – driving demand for grid-strengthening technologies, advanced cooling systems, and improved water solutions. AI itself enables enhanced climate risk assessment and disaster response capabilities.
These dynamics highlight the need for a more integrated investor approach that considers decarbonisation, nature and resilience together – particularly in a sector that remains relatively early-stage and uncertain.
IIGCC plans to develop a holistic approach that spans traditional sector and asset class boundaries, with a focus on data centre operations and, potentially, construction. This work will aim to support investors through guidance, insights, engagement tools and policy‑related activity across data centre operations and related assets, working in partnership with other investor organisations globally.
We are developing this work in consultation with members and invite you to share your priorities and help shape our approach.
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