Viewpoint: Data centres – rewiring the energy transition

Data centres sit at the heart of one of the defining economic transitions of this decade and beyond. Cloud computing, AI, digital public services and productivity-enhancing software are expanding rapidly, and they are unavoidably energy-intensive.

For investors focused on transitions rather than static carbon footprints, this creates an uncomfortable but unavoidable tension: some of the most strategically important companies are growing fast, and their absolute emissions are rising, even as they invest heavily to reduce their environmental impact. This is the central paradox of digital infrastructure: it is both essential to economic progress and a new pressure point on energy systems.

Understanding this paradox requires shifting how we interpret emissions data. For fast-growing digital infrastructure providers, emissions growth often reflects demand growth rather than environmental indifference. The more relevant questions are whether emissions are growing faster or slower than the economic value being created, and whether today’s capital decisions lock in a cleaner or dirtier system tomorrow?

For fast-growing digital infrastructure providers, emissions growth often reflects demand growth rather than environmental indifference

An individual company opening a hyperscale data centre powered by long-term renewable contracts, operating at high utilisation and replacing thousands of inefficient on-premises servers, may increase reported emissions, while still delivering a net reduction in system-wide carbon intensity. Locational choices matter here too: placing data centres in regions with abundant clean power or where they can support new renewable developments can accelerate decarbonisation, whereas locating them in congested grids can raise marginal emissions.

That said, growth cannot be a blanket excuse. In our view, transition credibility rests on evidence, not intent. Investors should expect to see clear measurable progress. This could include declining emissions intensity and a switch to renewable energy matching, on an hourly basis. This would ensure that energy consumed is directly matched with clean production at the same time, rather than relying on companies buying annual offsets, which can mask periods of fossil-fuel-heavy grid reliance.

Transition credibility rests on evidence, not intent. Investors should expect to see clear measurable progress.

Companies should also show credible plans to demonstrate they are not placing unreasonable demand on energy grids and transparency around Scope 3 impacts, particularly embodied carbon in construction and hardware.

Capital expenditure matters enormously. Companies building flexible, efficient data centres near clean power, investing in cooling innovation and demand response while supporting grid resilience, are shaping the future energy system, not just consuming it. Investors should also consider non-energy impacts such as water usage and land intensity, particularly as next‑generation cooling technologies become more widely adopted.

There is also a question of societal value. Transition investing requires judgement about use cases, not just kilowatt hours, meaning evaluating the ‘quality’ of compute demand is becoming as important as evaluating its quantity. Data centres that enable medical research, energy optimisation, digital inclusion and productivity gains arguably contribute to broader decarbonisation and social resilience. By contrast, growth driven purely by compute with limited societal or environmental value or poorly governed AI deployment deserves more scepticism.

For transitions strategies, the goal is not to avoid companies whose emissions are rising, but to back those whose direction of travel is demonstrably aligned with a lower-carbon, more efficient economy. This can mean accepting short-term discomfort in reported emissions in exchange for long-term structural improvement. It also means being willing to engage, and to walk away if progress stalls or transparency weakens. Ultimately, digital infrastructure will continue to expand; the question for investors is whether that growth accelerates the energy transition or becomes a barrier to it.

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