A First Street analysis of 97 global data center markets found widespread exposure to flooding, extreme winds, wildfires, heat and drought, raising concerns about long-term costs, reliability and investment risk.

By yourNEWS Media Newsroom

Nearly four in five data centers worldwide face elevated exposure to acute climate hazards, according to a new analysis that warns investors and operators may be underestimating the long-term risks facing the fast-growing digital infrastructure sector.

The report from climate-risk analytics firm First Street found that 79% of global data center capacity is located in areas exposed to elevated risks from hazards such as flooding, extreme winds and wildfires.

The findings raise concerns about potential service disruptions, downtime, repair expenses and rising insurance costs for facilities that support cloud computing, artificial intelligence, financial services, communications and other digital systems.

First Street examined 97 data center markets around the world and found that climate exposure is not limited to sudden disasters. More than half of all data centers are also located in areas facing chronic climate stresses, including extreme heat and drought.

Those long-term pressures can affect day-to-day operations by reducing energy efficiency, increasing cooling demands and raising operating costs.

“Most underwriting for real assets still uses historical data, but the climate is no longer behaving the way the historical record would predict,” First Street CEO Matthew Eby said.

“As heat, drought, and water stress increase, outdated models simply don’t offer a complete view of risk anymore,” Eby said.

The analysis suggests that traditional risk models may not fully capture the conditions data centers will face over their expected operating lives. Many facilities are designed to function for 20 to 30 years, making future climate conditions a major factor in evaluating where they should be built and how they should be priced.

First Street said investors who use forward-looking climate data may be better able to identify markets where data center assets are likely to remain resilient over time.

“Investors who incorporate these factors into underwriting and capital allocation decisions will be better positioned to identify resilient markets and avoid mispriced risk,” Eby said.

The report found significant regional differences.

The Asia-Pacific region had the highest exposure, with 89% of data center capacity at risk from acute climate hazards. In the Americas, 50% of capacity faced similar exposure, while Europe, the Middle East and Africa had 46% exposed to acute risks.

First Street Chief Economist Jeremy Porter said location plays a major role in determining whether a data center remains reliable and cost-effective over decades of operation.

“Where you build a data center determines a large share of what it will cost to run for the next 20 or 30 years,” Porter said in a statement accompanying the report.

“Climate is a big part of that: cooling, water, and reliability all depend on location. But most valuations still focus on growth and treat climate as a secondary concern,” Porter said.

The report identified several fast-growing data center hubs as among the most exposed markets. Those include Northern Virginia, Johor, Malaysia, and Marseille, France.

Nordic markets, by contrast, showed the lowest levels of climate risk, according to the analysis.

The findings come as data center demand continues to rise, driven in part by artificial intelligence, cloud services and growing digital storage needs. First Street’s analysis indicates that as more projects are developed, climate risk may become a larger factor in decisions about site selection, financing, insurance and long-term operating costs.

For investors, the report warns that assets may be mispriced if climate hazards are treated as secondary concerns rather than central variables in a facility’s long-term performance.