According to new research from First Street, 79% of the world’s data center capacity is exposed to climate hazards, including flooding, wildfire, and high winds, while 54% are situated in areas facing chronic heat or drought. This situation raises concerns about the future viability of data centers as companies invest heavily to meet increasing demands driven by artificial intelligence.
The report highlights that rising temperatures necessitate increased cooling efforts within data centers, leading to higher electricity and water consumption. Additionally, elevated temperatures may negatively impact the longevity of critical components within these facilities, increasing the risk of operational failures.
Existing data centers face threats from extreme weather events such as flooding and storms, which can compromise electrical systems and network connectivity, potentially resulting in outages.
A separate analysis by insurer MS Amlin revealed that 56% of new construction projects are being placed in disaster-prone regions. Matthew Eby, CEO of First Street, noted that “most underwriting for real assets still uses historical data, but the climate is no longer behaving the way the historical record would predict.”
In light of rising costs for materials and utilities, companies are increasingly looking to reduce expenses by locating campuses in cheaper, yet riskier, areas. First Street emphasizes that climate risk is becoming a significant factor that could influence long-term asset performance.
The company warned that these climate-related risks affect not only net operating income stability but also the durability of cash flow, imposing additional challenges on the financial sustainability of data centers.
