Speaking at Davos early in 2024, Sam Altman, CEO of OpenAI – the company behind ChatGPT – said an energy breakthrough would be necessary to power the energy-hungry artificial intelligence (AI) that has captured the public imagination.

Data centres will be at the heart of providing the energy that AI and other cutting-edge technology will require. A data centre is a physical location that houses a network of thousands of server computers. They’re the physical reality behind what’s often called ‘the cloud’ – the slightly misleading name for a very real method of storing data and powering our digital lives. There’s a question however as to whether enough consideration is being given to the environmental, social and governance (ESG) consequences of data centres, which are growing in number.

A vast amount of energy is required to power the computers within data centres, which means they must be located near an energy source, for example a hydroelectric dam. Data centres also use huge amounts of water to cool the equipment they house and therefore need to be situated near a reliable water source. This water must be sourced responsibly to ensure the data centre doesn’t detrimentally affect the local community.

The International Energy Agency (IEA) says data centres and data transmission networks are responsible for one per cent of energy-related greenhouse gas emissions. To be on track with the IEA’s Net Zero Emissions by 2050 Scenario, emissions from data centres must halve by 2030.

However, current technological trends indicate that demand for data centre services is set to grow – AI and cryptocurrencies will probably be the biggest drivers of this. New facilities, therefore, must be developed sustainably. ‘Overall, we will need more energy’, says Nazar Chernyavsky, Co-Chair of the IBA Technology Law Committee and a partner at Sayenko Kharenko, who’s based in London. ‘It’s more an issue of where to find it.’

Some of the largest technology companies are investing in renewable or low-carbon energy sources to reduce the environmental impact of their data centres. Amazon, for example, runs more than 500 renewable energy projects and in 2024 procured nuclear as another carbon-free energy source. In November, Google announced that its geothermal power project, developed with clean-energy startup Fervo, was operational and providing energy to the Nevada power grid.

Jocelyn Paulley, co-lead of the Data Protection and Cyber Security sector for the UK at Gowling WLG, says large technology companies are in a position to change the market. They will often, she says, require data centre operators to commit to only buying green energy. This is in part driven by their own ESG commitments. Data centre operators are also incentivised to make their facilities as energy efficient as possible to keep their prices low.

Ultimately, consumer demand is the driving force behind the growth of data centres. The services they provide allow technology companies to offer the digital products consumers increasingly rely on. ‘The data centre operators get a lot of negative press’, says Paulley, ‘but […] they’re part of a big technology stack to provide us with the commercial and consumer services we all use’.

Education is needed to address poor public understanding. Terms such as ‘the cloud’, evoking an ephemeral space where data is held almost magically, have not helped. Chernyavsky says that because some generative AI programs are publicly available, people use them for fun but don’t realise how much energy they consume. He argues that the companies behind such programs could introduce rules or pay structures to govern the tasks AI can be used for.  

The vast majority of businesses and law firms have made ESG commitments in line with voluntary standards and in anticipation of legislation such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and the US Securities and Exchange Commission’s new rules for disclosing certain climate-related information. Some of these rules, for example the CSRD, require companies to report on emissions across their entire supply chain, referred to as Scope 3 emissions. Data centres will probably fall within that remit for most businesses and law firms that use technology.

Chernyavsky says larger law firms will have their own ESG strategy with a dedicated officer who analyses how adopting new technology would help or hinder this plan. Here, the decision-making process could consider the environmental footprint of the technology the firm plans to adopt – for example, whether it uses renewable energy and generates additional jobs where it’s based.

Paulley says assessing the environmental impact of adopting new technology can be challenging because there’s limited understanding of what’s involved in making and providing the tech and this process is often outside the purchaser’s control. ‘It’s a buying decision and therefore an evaluation of the product or the service you’re buying as a whole’, she says.

Businesses are increasingly using AI to help them fulfil their ESG reporting requirements because of the vast amounts of data to be collated. But given how energy-hungry AI is, it may be time to consider whether using such tools makes sense from an ESG standpoint.

The IBA has set up dedicated webpages to bring together its content on both ESG and AI/tech.

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