Aligned: Sustainable Finance: New way to address the environmental footprint of data centers

Sep 27, 2021 | Posted by Abdul-Rahman Oladimeji

Much has been said about how data centers adversely affect the environment. However, more data centers have begun to become 'Greener.' Besides, in order to leave a better environmental footprint, many data center companies are now spending more on green energy. Investors and data center financers are also now a big part of this green energy movement. They are actively looking to have 'climate-worthy' data center facilities in their portfolio. In light of this, sustainable finance is the new way to address the environmental footprint of data centers.

Data Center Firms Signing Green Finance Deals

Some of the biggest data center companies in the world have secured funding linked with sustainability or ESG (Environment, Social, and Governance). Recently, Aligned announced $1.3 billion in securitized notes under its Green Finance framework. Equinix, Digital Realty, and other big data center firms also signed green bonds or sustainability-linked loans in the last 12 months.

We are likely to see more sustainability-linked loans in the future as more and more investors and financiers want to have 'green' data centers in their arsenal. According to Morningstar, there were 76 new climate-aware funds launched in 2020 worldwide. Morningstar also tracks over 400 mutual funds and exchange-traded funds, with climate change as a major theme worldwide.

Data Centers, Green Bonds, and Sustainability-linked Loans

After Aligned announced $1.3 billion in securitized notes under its Green Finance framework, its CEO, Andrew Schaap, commented. He said: “ESG has been around for a while, and it is beginning to permeate the financial institutions and the way they think,” he further added that: “Investors and financial institutions are also being held accountable for their sustainability practices. You’ll start seeing it more. The banks are clamoring to be involved in these.”

A sustainability-linked loan is a type of loan financing that includes 'green loans.' These loans are used in funding a sustainable project directly. Another example of a sustainability-linked loan is Nabiax’s €320 million financing to environmental and social targets. Aside from linking the loan to environmental goals like water treatment and greenhouse gases, it is also linked with a gender equality target. The gender equality target will allow Nabiax to hire more women in the workplace.

AirTrunk also recently converts $1.545bn in sustainability linked loans. The loan will deliver on some ESG  goals, including pursuing carbon neutrality and energy efficiency, it will face reduced interest, and importantly, if it fails to meet the KPIs outlined in the new facility, it would pay more.

Digital Realty has also been making significant strides when it comes to green finance. The firm was the first data center Company to use green loans. Besides, it has also raised over $5 billion using green loans since 2015. The Chief Financial Officer at Digital Realty, Andrew Power, said: “Investors have shown a clear preference for securities with a commitment to sustainable investment, and the green bond market offers an efficient means of aligning our financing strategy with our corporate sustainability objectives.”

Earlier in the year, Equinix announced that it priced a $2.6 billion principal amount of notes, with $1 billion dedicated to green bonds. The proceeds from this green bond would be invested in sustainability-linked projects.

What Does The Future Hold For Hold For Sustainable Finance?

One way to ensure data centers use green energy is by setting environmental targets for lending and funding data centers. The target should also prioritize the ESG criteria, which are; Environmental, Social, and Governance. Besides, since data center companies need a steady flow of money to build data centers, they'll have no choice but to meet these criteria if they want to get the funding they need to operate. With this, we can conclude that financiers and investors have a significant role in ensuring that data centers use more renewable energy.

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