7 July 22

Technology & the built environment: investing in the infrastructure of the internet sustainably | Net Zero Week

Today tech can revolutionise the world we live in, however, as we focus our lens on Net Zero Week (2-8 July), it is important to examine the infrastructure that makes this technology resilient and sustainable. This article was originally published in Investment Week.

Digital infrastructure is often the missing piece of the puzzle when we talk about technology's potential and investment case, and many investors are still bypassing this sub-sector in favour of glitzy tech stocks and the search for the next ‘unicorn'. As such, many investors are unaware of the importance of the digital infrastructure to our everyday lives, not yet understanding the investment opportunity that it offers or how integral it is to the journey to net zero. 

The brain of the internet

Critical to the day-to-day running of our digital lives are data centres. Data centres are like the brain of the internet, where the world's data, including websites, videos and music, is stored. They are where the internet lives and are increasingly the sites where huge amounts of data is processed, making them central to the functioning of our modern world.

Many data centres have long-term contracts with creditworthy counterparties, making data centres an attractive play for equity investors, particularly given the current macroeconomic environment. There are also elements of inflation protection within contracts, either through fixed annual uplifts or CPI/RPI links, making exposure to these assets a smart move for investors looking to proof their portfolio against a market of diminishing returns.

Examining the sustainability of infrastructure

The United Nation's Sustainable Development Goal 9 focuses on building resilient infrastructure, promoting inclusive and sustainable industrialisation and fostering innovation data centres support this by improving connectivity and, through housing important data sets such as vaccine trial or climate change research, facilitating societal improvements for many around the world. However, some investors harbour concerns over their net environmental impact, given they globally consume 2% of electricity and contribute 2% to CO2 emissions. This is set to worsen over the coming years, as data centre traffic continues to increase year on year to meet the growing demands.  

The main issue that data centres face is that their servers generate a lot of heat, which has to be removed. This cooling typically consumes 25% of a data centre's energy - or closer to 40% when processing large data sets. But many data centres are located in climates that require almost constant cooling, and lots of power. What's more, the electricity used by most of the world's data centres comes from coal, gas and oil, leading to high emissions.

At Digital 9 Infrastructure, where our investment strategy is aligned to the UN's SDG 9, we like to say that it is more efficient to export data than renewable power. By this, we mean that it is most sensible to focus on migrating energy-intensive, latency-insensitive data (e.g. natural language translation, protein sequencing, aerodynamic simulations) to countries that are already net renewable. Traditionally, all datasets were processed in cities like London and Amsterdam, but we are seeing a notable shift, and data centres are increasingly being set up in the Nordics.

The Nordic region has the highest proportion of renewable power in the world, as well as the lowest energy prices in Europe. Adding to its attractiveness for data centres is its natural climate. The efficiency of data centres is described by their PUE metric (‘Power Usage Effectiveness') and it's far easier to achieve a lower, better PUE value in colder climates as the outside air can do most of the cooling work.  

We are seeing dramatic growth in the Nordic region for digital infrastructure for these very reasons. Some investors had previously been concerned about liquidity risk when considering backing data centres, but now all we are seeing is fierce competition for both assets and data centre capacity.

Convergence value across different investment platforms

Data centres are only one part of the broader digital infrastructure chain. If data centres are the brain of the internet, then subsea is the backbone: 98% of all international internet data travels through subsea fibre. Although subsea fibre demands far less power than data centres, to make the output chain as sustainable as possible, it makes sense to bring the subsea cables to areas with green, clean data centres. This has compounded interest in the Nordic market from investors.  

The key to sustainable investing in the world of digital infrastructure is having a holistic view and understanding the relationship between various parts of a value chain. These green data centres play an important role far beyond the storage and processing of data, in that they are also supporting the formation of a new global fabric of interconnectivity.

Thor Johnsen, Head of Triple Point's Digital 9 Infrastructure. 

Further reading: ESG metrics need to improve for green digital infrastructure