Regardless of sector, specialty, or location, organizations across the globe are ditching the traditional in-house data center in favor of an off-site data solution.

As enterprises build large-scale, data-hungry applications like AI platforms into the foundations of their digital strategies, third-party data centers represent a scalable and cost-effective 'modus operandi' capable of keeping up with the sizable demands of systems such as large language models.

But while third-party data centers present an effective and efficient off-site solution, the laissez-faire approach that some businesses are inclined to take is a powder keg for corporate ESG.

ESG and data center outsourcing: the pitfalls

With sustainability claims unchecked and key ESG metrics difficult to attain, third-party data centers have the potential to ravage corporate ESG and sustainability goals, slashing reputations.

This can be avoided. But only if ESG executives take an active approach to their data center outsourcing. Companies must push for transparency from their data center provider in order to report accurately on ESG metrics, consider how the impact of their data center usage fits into their ESG strategy and targets, and take action to reduce emissions in light of their new supply chain visibility.

Data centers bring with them a unique set of ESG and sustainability considerations. Their energy consumption is immense – and set only to increase, with AI expected to drive up usage by 160 percent. And that's before you factor e-waste and water consumption into the equation, with the average data center churning through 300,000 gallons of water a day.

ESG goals and timelines for achievement must be fully informed by the reality of the impact data centers have on the environment – so it is imperative that companies achieve full visibility over their third-party data centers.

Without an in-depth understanding of a third-party data center’s operational metrics and its environmental impact, firms are unable to include data center usage within their ESG reports. To ignore that is to set corporate ESG up for failure and risk painting the company as dishonest or misleading in the process, the knock-on effect of which will be felt among stakeholders and employees alike.

But beyond the optics of accurate and honest ESG reporting, firms risk legal consequences. With governments worldwide implementing increasingly stringent mandatory ESG reporting requirements, corporations can’t afford to take a half-baked approach to ESG and sustainability reporting.

Data sharing is key

So what’s the solution?

Companies and their ESG executives need to stop and consider whether their data center operator is providing them with all the information they need – and, if not, push for a regular data-sharing agreement. Executives should be collecting data not only on energy uses and carbon emissions, but also on e-waste, water consumption, and any other metric that impacts their overall ESG impact.

They must then carry out regular internal audits with this data to evaluate its impact on their wider sustainability strategy, their targets, and their company values.

As they do so, ESG executives must ensure they’re considering all corners of ESG and sustainability. It can be easy to zero in on the E, given the notable impact on this of data centers, but S and G are equally important factors – such as how materials for data centers are procured and the treatment of workers in that computing provider’s international supply chain.

Of course, most businesses likely won’t be able to reduce their reliance on data centers if they want to stay competitive, so if this usage is going to prevent them from hitting key targets, they can look for an alternative provider. For example, one that utilizes more renewable energy or invests more in sustainable cooling technologies.

If that’s not an option, they must look to their own operations or other suppliers to find creative ways of reducing or improving their impact on the planet, to offset the impact of their data center usage. No matter the solution they opt for, it’s critical that organizations take action to bring their digital supply chain in line with their broader ESG and sustainability framework.

There are some hard truths we need to face about the way data centers operate. While there's some great work being done to mitigate their environmental impact, for now, ESG executives must ensure they are fully informed of the environmental and sustainable impacts of their chosen data centers, report on it accurately, and take decisions to reduce or mitigate this impact.