EU Sustainability Legislation Advice for Data Centre Operators
For those who are thinking of setting up shop in the EU, and even more so for those already firmly established in the region - you may have come across the confusing maze of legislation relating to sustainability. It's important to keep abreast of developments in this area since amendments to existing legislation plus new regulations are expected to come thick and fast as the data centre sector matures.
The below guidance should benefit operators and developers alike to get a low-down of the key sustainability legal requirements related to such advanced facilities.
The big three - CSRD, EU Taxonomy & CSDDD
The Corporate Sustainability Reporting Directive (CSRD) is directly coupled with associated 'European Sustainability Reporting Standards (ESRS)'. Together they dictate detailed sustainability reporting requirements.
The CSRD will replace the existing EU Non-Financial Reporting Directive (NFRD).
The phased timing of the CSRD is crucial, with the application of the CSRD taking place in four stages, as illustrated below.
For the 11,700 large companies currently reporting under NFRD requirements, the CSRD will apply from Jan 2024 with first reports due in 2025.
For the additional 38,300 large companies that fall under the new criteria noted above, the CSRD will apply from Jan 2025 with first reports due in 2026. Small and medium enterprises (SMEs) listed on EU regulated markets will be subject to the CSRD from 2026 (first reports due in 2027), although they will be able to opt out during the transitional period (until 2028).
Most data center owners and operators, colocation tenants and cloud users will need to report climate-related financial risks, including their Scope 1, 2 and 3 carbon footprint and energy use, under the EU’s CSRD.
Such sustainability-related information includes;
A description of the company’s business model, strategy and sustainability risks and opportunities;
ESG-related targets and annual progress on meeting these targets;
Separate sustainability statements included in the company’s management reports, containing sector-agnostic, sector-specific and company-specific information, in accordance with the ESRS;
Implementation plans in relation to the transition to a sustainable economy, measures taken to limit global warming in line with the Paris Agreement and to achieve climate neutrality by 2050 and exposure to coal, oil and gas-related activities;
Sustainability matters that affect the company and the impact of the company on sustainability matters (the so called “double materiality” perspective) - Most organizations will conduct a double materiality assessment as a first step toward CSRD compliance.
Greenhouse gas emission targets;
Policies in relation to sustainability (including incentive schemes linked to sustainability matters);
EU taxonomy alignment data; and,
Due diligence processes implemented by the company in relation to sustainability matters and the actual and potential adverse impacts of the company’s operations and value chain.
Significant additional detail has been provided for in the ESRS, including two cross-cutting standards (ESRS 1 and ESRS 2) that provide general reporting concepts (including double materiality and reporting boundaries) and overarching disclosure requirements, and ten topical standards with specific disclosure requirements for ESG matters.
In a nutshell - The ESRS provides the framework for what metrics companies need to report, and how they need to report them. For the first wave of companies, disclosures will be required as early as the 2024 reporting period.
The CSRD features a mandatory assurance requirement for reporting by an independent assurance service provider against sustainability reporting standards.
Finally, there are also international standards to consider. Whilst efforts have been made to ensure that there is a high level of interoperability between the ESRS and the global International Sustainability Standards Board (“ISSB“) standards, there will not be full-alignment and disclosures made will need to account for a range of local and international standards.
The EU Taxonomy Regulation (EU TR) entered into force on 12 July 2020, and requires companies to disclose the sustainability performance of their activities - forming the basis of the information provided in their CSRD disclosures.
The Taxonomy is primarily a classification system for economic activities. Like any classification system, it has definitions and rules. The EU Taxonomy’s definitions and rules determine which economic "activities" are environmentally sustainable.
I.e. It considers that an “activity” is defined as sustainable when it produces under 100g of CO2/kwh. The use of coal is also determined as a disqualifying factor for a company to be considered ’taxonomy-friendly’.
Thus, the regulation obligates companies to report on how and to what extent their activities are aligned with the provided “environmentally sustainable” definition.
Note a Complementary Climate Delegated Act has been approved in principle to accelerate decarbonisation - and includes strict qualification requirements for various activities - with a specific reference to data centers in Annex 2, which in turn makes reference to the European Code of Conduct (CoC) on Energy Efficiency. The CoC includes a recent compliment - The Assessment Framework for Data Centres, which is intended to help determine whether data centers meet the requirements of the EU TR.
Online tools to help users better understand the EU taxonomy have also been made available - notably, the EU taxonomy navigator.
The Corporate Sustainability Due Diligence Directive (CSDDD) establishes a corporate due diligence duty; requiring thousands of EU and non-EU companies to identify, prevent, and mitigate any negative human rights and environmental impacts in their operations and value chains. The rules, which will be phased in beginning in 2026 for EU companies and 2029 for non-EU ones, will not include financial institutions for now (such institutions should refer to the EU Sustainable Finance Disclosure Regulation - SFDR).
Policies and procedures should be developed to address the above impacts; publicly report efforts to address environmental and human rights risks; evaluate the effectiveness of due diligence procedures at least once every 12 months; and establish grievance mechanisms that enable employees and stakeholders to raise concerns.
The EU Energy Efficiency Directive (EED)
This directive mandates data centres to proactively monitor and report energy consumption & emissions. Some key revisions were recently added; including a EU legally binding target to reduce the EU’s final energy consumption by 11.7% by 2030. Increasing annual energy savings from 0.8% (at present) to 1.3% (2024-2025), then 1.5% (2026-2027) and 1.9% from 2028 onwards. It also includes approaches relating to energy management systems and systematic energy audits.
Under the EED, starting on 15 May 2024, data center owners and operators in the EU bloc will have to report their data center’s energy performance for the previous year annually into a European database. In parallel, reference should be made to the ongoing public consultation relating to the Draft Delegated Act (“DDA”) - a common rating scheme on the energy performance of data centers in the European Union and European Economic Area (“EU/EEA”). The DDA will lay out the energy key performance indicators that operators and owners of data centers must report, the sustainability indicators that will be calculated per data center, and the aggregated data that will be made publicly available.
The data due next year will have to cover the period from May 2023 and will include floor area, installed power, data volumes, energy consumption, PUE, temperature set points, waste heat utilization, water usage, and use of renewable energy. The requirements are set out in Annex VII of the Directive.
Key provisions of the Energy Efficiency Directive for data centres include;
Mandatory Reporting: Data centre operators with a total rated power of at least 500 kilowatts (kW) are required to publicly report their energy performance data annually. This data includes energy consumption, PUE (Power Usage Effectiveness), temperature set points, waste heat utilization, water usage, and use of renewable energy.
Waste Heat Utilization: Data centres with a total rated power exceeding 1 MW must utilize their waste heat for heating purposes or other energy recovery applications unless it is technically or economically unfeasible. This promotes the circular economy and reduces the need for fossil fuels.
Renewable Energy Integration: Data centres should prioritize the use of renewable energy sources for their electricity consumption. This effort helps to reduce the carbon footprint of data centres and contribute to a more sustainable energy mix.
Optimizing Energy Consumption: Data centre operators must implement energy efficiency measures to reduce their overall energy consumption. This includes optimizing cooling systems, using more efficient IT equipment, and adopting virtualization and server consolidation techniques.
The Directive aims to reduce energy use in Europe by 11.7 percent by 2030, to help meet the EU Green Deal goal of a 55 percent cut in carbon emissions by that same date. Data centers are expected to become more efficient, and the first step will be mandatory reporting of energy use and emissions from data centers in the bloc which are larger than 500kW.
Under the recast Energy Efficiency Directive, local authorities are also required to prepare heating and cooling plans to reuse excess heat generated by data centres.
Eco-design Requirements
Enterprise servers and data storage products, which cover so-called business-to-business computers typically found in data centres and server rooms of companies, sold in the EU are subject to rules laid out in the Regulation on eco-design requirements for servers and data storage products EU 2019/424.
The objective of the regulation is to limit the environmental impact of these products with a set of rules on energy efficiency, such as minimum efficiency of the power supply units and minimum server efficiency in active state, maximum consumption in idle state and information on the product operating temperature.
Note, as always there are developments in this area - The proposed Eco-design for Sustainable Products Regulation (ESPR) is the cornerstone of the EU Commission’s approach to more environmentally sustainable and circular products. It is based on, and will replace, the current Ecodesign Directive 2009/125/EC, which has driven improvements in energy efficiency and circularity of energy-related products for over a decade.
Chemical Management
Developers and operators alike should be aware of the EU’s chemicals strategy for sustainability towards a toxic-free environment. The European Commission published a chemicals strategy for sustainability on 14 October 2020. It is part of the EU’s zero pollution ambition, which is a key commitment of the European Green Deal.
Other related items include the REACH Regulation, Classification, labelling and packaging of chemicals, and The European Pollutant Release and Transfer Register (E-PRTR) and the Industrial Emissions Directive - the main EU instrument regulating pollutant emissions from industrial installations.
Tackling Climate Change
The EU Commission is charting the path to reach the goal of making the European Union climate neutral by 2050. It recommends a 90% net greenhouse gas emissions reduction by 2040 compared to 1990 levels.
To achieve this target, calls to action include the full implementation of existing EU laws to reduce emissions by at least 55% by 2030 (compared to 1900 levels), and to decarbonise industry by relying on existing strengths like wind power, hydropower, and electrolysers.
The regulation titled 'Implementing Regulation (EU) 2022/996 on rules to verify sustainability and greenhouse gas emissions saving criteria and low indirect land-use change-risk criteria' lays out common rules to ensure efficient and consistent checks of whether businesses are complying with sustainability criteria and providing accurate data on greenhouse gas (GHG) emissions savings, in addition to compliance with biofuel, bioliquid and biomass fuel certification.
The EU also developed the 'Clean energy for all Europeans package', adopted in 2019, to help decarbonise the EU's energy system in line with Europe's Green Deal objectives. Key focus points of the package include, 'Energy Performance in Buildings', 'Renewable Energy' and 'Energy Efficiency'.
Data centre operators should also monitor directives relating to fuel use and their potential impact on data centre operations in addition to developments relating to the EU Emission Trading System (ETS).
Building energy performance is also a key item to monitor - The EU Commission has adopted a legislative proposal to revise the Energy Performance in Buildings Directive (EPBD), with a proposal for all new buildings in the EU to be zero-emission buildings as of 2030, while all new public buildings must be zero-emission as of 2027.
The 'Climate Neutral Data Centre Pact', launched in 2021, also engages data centre operators on matters relating to Climate Neutrality by 2030 with clear metrics relating to energy efficiency, clean energy, water conservation, circular economy and circular energy systems.
Waste from Electrical and Electronic Equipment (WEEE)
The WEEE Directive and the RoHS Directive tackle the issue of the growing amount of WEEE. The former is currently undergoing evaluation to assess whether the objectives are being met and any required changes.
Waste Management
In January 2023, Parliament voted on its position regarding EU waste shipment rules, which aim to promote reuse and recycling and reduce pollution. Also, the ambitious Global Plastics Treaty may well come into effect by the end of 2024.
Another pending EU legal revision includes the promotion of reusable packaging options, removal of unnecessary packaging, limiting overpackaging, and provision of clear labels to support correct recycling that will require all EU packaging to be fully recyclable by 2030.
KPIs
The CSRD and the EED, through the assessment framework, requires the use of EN 50600 / ISO 30134 KPIs. The above standards provide key performance indicators (KPIs) for data center PUE levels that European data centers can follow.
We hope you found this article useful!
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This article was written by Luay Zayed, Founder' of Biyat Energy & Environment Ltd. A global energy and environmental consultancy specializing in turnkey engineering solutions that protect the environment and improve energy efficiency in the manufacturing & industrial sectors.