Contractual tools for climate-conscious data centres

Demand for server space has never been higher, and it is unlikely to fall as the use of artificial intelligence (“AI”) continues its transition from novelty to necessity in the digital age. The staggering proliferation of data in recent years has necessitated significant investment in the data centre sector, with the physical spaces required for collecting, storing, processing and distributing this data becoming bigger and more power-hungry.

The environmental impact of this global data processing is considerable. This is an issue that the industry is taking seriously, with many participants looking for increasingly efficient ways to power and cool these buildings, with the benefit of cost savings as well as environmental improvements amidst the surging demand for computing power.  In this note, we look at the key environmental challenges faced by the sector, and consider the role that its contracts might be able to play in addressing these. 

The issues for data centres

With the International Data Corporation reporting that the volume of data stored globally is doubling approximately every four years [1], it has been estimated that the global volume of data created will rise to 394 zettabytes (one zettabyte = one trillion gigabytes) by 2028 [2]. AI usage is the most significant driver of this growth, alongside widespread adoption of cloud-based storage systems, with the resulting data all needing to be processed, stored and distributed via a global network of data centres.

Whilst an in-depth review of the environmental impact of the data centre industry is beyond the scope of this article, the following issues are ones of which people are most aware:

• Energy consumption: the International Energy Agency note that data centres accounted for around 1.5% of the world’s electricity consumption in 2024, with data centre-related electricity consumption predicted to double by 2030 [3]. Although the use of renewable energy is on the increase, experts believe that data centres are now responsible for between 2.5% and 3.7% of all human-induced CO2 emissions, which would place the sector as a bigger contributor than aviation (at 2.1%) [4].
• Water consumption: ensuring that data centre systems remain cool is vital for performance and efficiency. A common method of achieving this is to run large amounts of water through cooling towers, chillers, heat exchangers and condensers. A typical data centre adopting this cooling method might use as much as 68,000 litres per day [5], with the figure for hyperscale centres likely to exceed 2,000,000 litres. Given the number of areas of high or critical water stress in the world, there is a focus on developing more sustainable cooling technologies (such as direct-to-chip cooling). 
• Raw materials: valuable elements like copper, silicon and lithium are used in the manufacture of servers, batteries and other electrical components, while large amounts of aluminium, steel and concrete are needed to construct the surrounding buildings [6]. The mining, processing and transportation necessary to provide these materials all present their own environmental challenges, and the sector’s dependence on them exposes it to global supply chain issues [7] - for more information on that take a look at our tariff tracker, as well as our recent article on the impact of tariffs in construction projects.

In the context of the above, an ESG strategy is important, and a number of developers have already pledged ambitious net carbon zero targets. Regulations have been introduced to address power consumption - for example, Article 12 of the EU’s Energy Efficiency Directive requires data centre operators with a power demand of more than 500 kW to monitor and report their energy performance for collection and publication in a European database, and data centres in the EU with a power demand of more than 1 MW are encouraged to take account of the best practices contained in the European Code of Conduct on Data Centre Energy Efficiency [8].

There are also a number of industry initiatives aimed at driving sustainability in data centres. For example:

• in 2022, Infrastructure Masons assembled the iMasons Climate Accord - a cooperative of over 70 companies aimed at reducing carbon in digital infrastructure materials, products and power with the goal of achieving carbon neutrality; and
• the Net Zero Innovation Hub for Data Centers was established in 2023 as a collaboration between industry participants to encourage European data centre operators and suppliers to address the key challenges they face on the path to net zero.

What role can your contracts play?

The regulatory landscape is constantly evolving, and the sustainability credentials of any given project are coming under increasing scrutiny from funders. As well as advising on regulatory and legislative requirements and changes, lawyers are well positioned to help developers, contractors, suppliers and lenders to legislate for these demands and targets within a project’s contractual framework through contractual targets, requirements and incentives. 

Lawyers may be able to support these sustainability imperatives by turning to what are colloquially known in the commercial development sector as “green clauses”, which can be deployed in development agreements, building contracts (and through the supply chain), financing agreements and leases.

Whilst green clauses and sustainability obligations have become commonplace in commercial leases today (evidenced by their adoption into ‘market standard’ precedents, such as the Model Commercial Lease, and recommended positions promoted by the Better Buildings Partnership), such provisions primarily seek to either restrict tenants from altering or using the demised premises in a way that would reduce its ‘environmental performance’ (typically calculated with reference to energy consumption and related costs) or to regulate the parties’ behaviour in respect of issues such as data sharing, metering and conducting environmental forum meetings.

Furthermore, the development of these concepts has largely taken place in the office, retail and industrial sectors. The same concepts are less likely to be attractive to data centre tenants due to the high consumption nature of their operations, and their need to quickly adapt premises to meet increased demand and capacity requirements, employ technological advances, and maintain confidentiality.

Green clauses can take many different forms however, and in the construction industry can range from simple duties to cooperate in promoting sustainable development, through to incentive-based KPI mechanisms and sustainability-based conditions to completion.

Limited examples can already be found in several of the standard form contract suites used in the construction industry. For instance:

• since 1999 the FIDIC Yellow Book has required contractors to take all reasonable steps to protect the environment;
• the NEC4 suite has, since 2022, offered an optional clause X29 aimed at signposting climate change requirements, incentivising performance against agreed targets, and encouraging collaboration to reduce the environmental impact of the works; and   
• in the UK market, the JCT suite recently elevated to the status of a standard clause a previously supplemental provision requiring contractors to suggest economically viable amendments to the works which may result in improvements to the environmental performance and sustainability of the works, or a reduction in their environmental impact.

While standard form construction contracts have begun making inroads into the use of green clauses with the high-level approaches described above, bespoke clauses lend themselves to greater project specificity. Such clauses might fall into some or all of the following categories:

• Energy Efficiency and Sustainable Design: operators may be required to reduce power consumption and improve efficiency, and developers and contractors may be encouraged to design and construct more sustainable centres, such as by using low-emission materials, optimising cooling systems and reusing waste heat where possible;
• Renewable Energy Usage: funders and developers might seek to introduce targets for the proportion of renewable or carbon-free energy sources used in the construction and operation of data centres;
• Carbon Emissions Reduction: green clauses can be introduced to set targets for greenhouse gas emissions, including Scope 1, 2 and 3 emissions;
• Waste Management: green clauses are increasingly being used to encourage recycling, reuse of server materials and proper disposal of electronic waste;
• Green Certifications: a project’s sustainability credentials are often assessed against leading certification schemes such as BREEAM, WELL, LEED, with achievement of a specified certification level commonly constituting a condition to a project achieving completion;
• Compliance with Regulations: while typically captured by more general compliance provisions, we might see specific warranties that developers and contractors will adhere to climate and sustainability regulations, such as the EU’s Energy Efficiency Directive.

Conclusion

For those involved in, or following, this sector, it is trite to say that the increasing adoption of AI services is driving a rapidly increasing demand for computing power and capacity, bringing with it a tension between growth and environmental sustainability.

Increases in operational efficiency, the use of renewable energy sources, and reduction in water consumption don’t just benefit the environment, but also allow operators to save costs and satisfy regulatory and funding requirements, further unlocking capacity. However, tensions can exist where the rate of technological developments in efficiency, and availability of reliable renewable energy, may not be able to always keep up with the urgent pace of capacity demands.

Fortunately, the data centre industry is brimming with creative and innovative experts, who are committed to delivering capacity, sustainably and efficiently. Whilst green clauses may not yet be ubiquitous across transaction documents, they can be explored as a tool to articulate sustainability outputs and to keep in focus the need to continue making improvements. In this sense, the contracts governing data centre development need not be viewed solely as a means to allocate and address project risks, but also as having a tangible role to play in futureproofing and driving transformation in the sector.