While environmental, social, and governance (ESG) standards are framing many conversations about data center efficiency, a dark horse element of ESG has the potential to upend traditional new-build versus retrofit decisions. That element is embodied carbon. Embodied carbon is concerned with measuring greenhouse gas emissions attributable to a facility historically as opposed to operationally into the future. CO₂ released during construction are “embodied” in the sense that those emissions are forever part of the facility’s initial carbon footprint. Current ESG discussions are often concerned only with present and future operational emissions.

However, viewed in the context of embodied carbon, the emissions inherent in every new construction project may also be attributed to and counted against a project’s ESG environmental score. Because new construction is fossil-fuel intensive, new-build projects may suffer on an embodied carbon scorecard, even if the goals of the new build are to lower future emissions operationally. To explore how ESG and embodied carbon may lead to a new preference for retrofits, it is helpful to consider each concept in turn and then explore how they interact with ESG scoring.

ESG Standards

In the early 2000s, the idea of corporate social responsibility (CSR) received increased interest across business, government, and academic circles. The driving force behind CSR was its promise that companies that considered the social and environmental impact of their operations might outperform those with a strictly profit-driven philosophy. Advocates suggested that both consumers and employees would be motivated to reward companies with a strong CSR culture that pursued a “triple bottom line” of “people, planet, and profits.” It was not long before two results became clear. First, research bore out that socially responsible companies often did outperform their competitors, sometimes by impressive margins. The second result was a widespread acknowledgment that profit and social responsibility, if thoughtfully pursued, were synergistic rather than mutually exclusive.

Around the same time, an initiative at the United Nations coined the term “environmental, social, and governance” and began promoting and applying CSR ideals to capital markets. As CSR concepts evolved and matured, the climate change focus of many businesses, governments, and academic institutions intensified, coalescing around the related issue of carbon emissions. Starting around 2018 (perhaps informed by the history of CSR), the investment and finance community started to more frequently integrate companies’ ESG impact as a key benchmark for investment decisions. With CSR, consumers purchased more from companies that were socially responsible. With ESG, investors started checking scorecards before writing checks or setting interest rates. The potential impact of ESG is immense, and these metrics may soon become a quarterly reporting reality for many companies, especially if they are significant consumers of energy, like data centers.

In the past, C-suite executives were concerned with data center efficiency and power consumption because it affected operating expenses. But now, efficiency could impact much more than a facility’s operational expenditures. Soon, a poor ESG scorecard may hinder access to the capital markets needed to sustain and grow enterprises.

The Case for Retrofits

As data centers demonstrate progress toward lower carbon emissions, many recent discussions focus on operational carbon emissions and how new design-build solutions hold the promise of more energy-efficient data centers. If ESG metrics were measured solely on operational emissions, then it might suggest a new boom for the design-build industry. And, admittedly, future operational emissions are a key component of ESG carbon emission metrics. However, policymakers are targeting near-term zero emissions, and since ESG metrics track embodied carbon, the scale could tip dramatically in favor of retrofits whenever an immediate reduction in new emissions is the objective.

Based on early information available about how embodied carbon is measured, new-build solutions generate a game-changing, colossal quantity of new carbon emissions. For example, by some estimates, many new construction projects, even those destined to be high-efficiency, could take 10 to 50 years before their energy-saving advantages break even with the carbon emissions caused by their construction. In other words, a new-build solution may need up to a half-century before any net reduction in carbon emissions would be realized. That timeline is an absolute deal-breaker, considering the urgent action sought by ESG investors seeking carbon neutrality before the end of the decade. Some new build facilities might not even be in service long enough to even reach their break-even point.

Current construction methods require carbon-intensive work. From concrete production and mining and fabricating metals to excavation and transportation, the cumulative fossil-fuel use required for a new build can result in off-the-charts emissions in the context of ESG standards. When embodied carbon is considered, an efficient, new design solution may be the ROI equivalent of spending $50,000 on a new solar-energy system in order to save $1,000/year in energy costs.

In contrast, with data center retrofit solutions, most of a facility’s carbon impact is locked in the past, occurring when global levels of CO₂ were less elevated. With existing facilities, concrete was poured, iron was mined, and polluting diesel bulldozers all rumbled long ago to birth the data center. Retrofit solutions like containment, HVAC system replacement, electronically commutated (EC) fans, and DCIM solutions may have financial and environmental payback periods of three or four years or less. In some estimates of traditional buildings, retrofits have comparative reductions of embodied carbon on the order of 50% to 70%.

Of course, from a perspective of absolute total carbon emissions over a facility’s total lifetime, new-build solutions, in theory, should still have an edge over retrofit solutions. At the end of the day, if embodied carbon emissions were roughly the same for both existing sites and new built sites, then the high-efficiency new facilities should win out in terms of total carbon emissions over a 50-year period or longer. However, unfortunately for the new build side of the debate, ESG investors cannot adopt a long-term perspective — even if such a view might be deemed fairer in terms of carbon economics. The reason ESG investors are locked into a short-term time horizon is that the majority of global climate change policymakers and activists have made it clear the planet cannot afford new carbon emissions. Many are calling for carbon neutrality before 2030. For ESG investors, it is new carbon emissions that must be reduced or eliminated, which means the promise of efficiency gains from new builds may have to wait until the construction industry achieves its carbon-neutral goals.

A Slam Dunk?

Like any new paradigm, ESG metrics and concepts are still evolving. And, there will always be scenarios where a new-build solution wins out over retrofit options. Innovations in organic construction materials that sequester rather than release greenhouse gases are already on the horizon and show great promise. However, so long as ESG standards continue their current path, diverse and innovative data center retrofit solutions may hold the upper hand over new build solutions — at least in the near term.

Almost by definition, retrofits are less costly than new builds, often turnkey by nature, faster to implement, easier to schedule, and require no downtime. If ESG metrics adopt an embodied carbon approach to measuring emissions, then we may be entering a new decade of retrofit dominance in the world’s pursuit for efficient data centers.