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SKAGEN m2: The importance of sustainability for data centres

The carbon footprint of the internet – including the act of running it and the gadgets that use it – account for 3.7% of global greenhouse emissions according to Lancaster University[i] and this figure is expected to double by 2025. Data centres alone are estimated to make up 1% of global greenhouse gas emissions.

Switch: Fully operated by renewable energy

In 2020, SKAGEN m2 initiated a position in Switch Inc, a US company that engages in the provision of technology infrastructure through the ownership and operation of data centre campuses. The company has been seeking to decarbonise its scope 2 emissions – emissions from electricity used – for almost a decade. Since 2016, Switch has been able to fully mitigate its scope 2 emissions via renewable energy contracts and procurement agreements with local electricity providers and can therefore boast that its operations are now fully operated by renewable power. As of 2020, 0 m/t of CO2e is emitted by Switch, compared to the 340 million tons of CO2 it estimates it would have indirectly emitted by using electricity present in the region. 

Reaching this important milestone was more arduous than simply setting up a contract with a local power provider. A considerable hurdle was first and foremost to ensure a more conducive policy framework. The company actively engaged with local government to unbundle regulations and laws that complicated the broader adoption and rules surrounding energy use.

Switch set up the Energy Choice Initiative to advocate the right for consumers – be they companies or retail consumers – to choose their energy options. In 2020, this initiative was passed in Nevada, which now requires electric utilities to acquire a minimum amount of electricity from renewable energy sources and to reach a renewable portfolio standard of 50% by 2050.

Renewable energy a key requirement for tenants

Renewable energy is increasingly becoming a key requirement for tenants looking for data centre space as ESG concerns continue to proliferate. Increased energy efficiency is the best way to be sustainable as the greenest energy is the energy that is never used. Switch's patented innovations in design, power, cooling and density allow its data centres to operate with industry-leading power usage efficiency. Switch is a leader in Power Usage Effectiveness (PUE) in the industry with a stabilised sector average PUE of 1.23. PUE is a measure of energy efficiency determined by the ratio of the total amount of energy used in a data centre to energy delivered to computer gear, with the lower the number the better and a PUE of 1.0 being perfect.

Switch also looks at how its data centres may otherwise potentially impact local communities, such as water consumption. For example, at the Citadel Campus in Reno, Nevada (a high water risk region), Switch is leading the development of a 4,000 acre-foot effluent water pipeline in northern Nevada that will allow the company to run the campus on 100% recycled/effluent water, also eliminating chemicals from the water.

Awarded highest Greenpeace rating

Switch continues to work on ensuring the sustainable growth of the internet, and for this the company has been awarded the highest rating for any class of company by Greenpeace, the "Clicking Clean Report". Switch is also the only company to achieve the highest environmental rating in S&P's global telecom category which consists of 180 companies.

In SKAGEN m2 we see Switch as one of the "purest" plays to capture the proliferation of the cloud. As all data needs to be analysed, computed and managed, the additional computer capacity and densities will play to Switch’s strengths. Thanks to its strong sustainable profile we think Switch is a potential M&A candidate, but more importantly has reduced risk, something that we value highly as fund managers.

In addition to excellent progress in terms of sustainability, Switch is also making good progress in its social responsibility and governance work. To illustrate this, Switch pays 100% medical insurance premiums for all employees and their family members and there is a strong gender and diversity mix among leaders and the board of directors.  

[i] https://www.bbc.com/future/article/20200305-why-your-internet-habits-are-not-as-clean-as-you-think

 

 

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