Why Server Location Matters – and How the CSR Directive Comes into Play

The growth of digital infrastructure has amplified energy consumption and carbon emissions, with data centers playing a pivotal role. Emissions vary significantly by location and type, making server placement critical for sustainability. The Corporate Sustainability Reporting Directive (CSRD) mandates stricter reporting on emissions, pushing companies to adopt greener practices. Sustainable data hosting reduces costs, ensures compliance, enhances brand reputation, and offers a competitive edge, making it both a regulatory necessity and a business opportunity.

Digital transformation has reshaped the way businesses operate. Almost every company now relies on digital products or services, whether developed in-house or provided by external vendors. According to a 2022 Bitkom study, 89% of German companies use cloud applications.

This rising trend underscores the pivotal role of data centers in digital infrastructure. However, this growth comes with a cost: Bitkom projects that energy consumption in Germany's data centers will increase to 20 billion kilowatt-hours by 2024, compared to 12 billion kilowatt-hours a decade earlier. The increasing adoption of artificial intelligence (AI) is one of the drivers of this surge.

The environmental impact of data hosting

Data hosting is a significant contributor to corporate carbon emissions. Running servers and their supporting infrastructure, such as cooling systems and data networks, demands substantial energy. However, not all data centers are created equal in terms of efficiency and emissions.

Consider this striking example: Amazon Web Services (AWS) operates data centers worldwide. Their most economical facility in Stockholm emits only 1.2 grams of CO₂ equivalents per hour, while the facility in South Africa emits a staggering 1,110.5 grams per hour if you choose the most powerful server type– a difference of 1,000-fold. This stark contrast highlights the critical importance of server location and type in determining a company’s carbon footprint.

The CSR Directive: A push for sustainability reporting

For most companies, data hosting falls under the “Purchased Goods and Services” category, part of Scope 3 emissions. These indirect emissions, originating from a company’s value chain, often constitute the majority of its carbon footprint.

Starting in 2025, businesses will face stricter reporting requirements under the Corporate Sustainability Reporting Directive (CSRD), effective from 2024. Previously, only large publicly traded companies were obligated to report on sustainability efforts. Under the CSRD, many medium-sized enterprises will also need to disclose their environmental, social, and governance (ESG) activities. This includes measures to reduce CO₂ emissions and incorporate sustainability into their operations.

Although the German government has failed to pass a national law implementing the CSRD by the end of 2024 and there are efforts at the European level to slow down implementation, the directive will become mandatory. Companies that act proactively can not only mitigate regulatory risks but also realize economic advantages.

Balancing social responsibility and business benefits

Decisions about server locations affect more than compliance; they have economic and social implications. Companies that prioritize sustainable digital infrastructure early stand to gain in several ways:

1. Lower Operating Costs: Data centers in regions with abundant renewable energy often achieve higher energy efficiency, reducing costs. Countries like Sweden or Canada, which leverage renewable resources like hydropower, offer optimal conditions for green data centers.
2. Enhanced Brand Reputation: Sustainability is becoming increasingly crucial for corporate image. Consumers, investors, and partners expect businesses to operate responsibly. Transparent sustainability reporting can boost trust and credibility.
3. Regulatory Readiness: Companies that invest in sustainable infrastructure now will be better equipped to meet future compliance requirements, avoiding potential penalties and liabilities.
4. Competitive Advantage: Sustainability can serve as a differentiator. Businesses that lower their CO₂ emissions can market greener products and services, setting themselves apart from competitors.

Steps toward a sustainable digital infrastructure

How can businesses ensure their digital operations are sustainable? Here are practical strategies:

• Evaluate Existing Infrastructure: Assess the locations and type of current data centers and their associated carbon emissions. Many cloud providers offer tools to help companies measure their environmental impact.
• Switch to Sustainable Providers: Opt for cloud providers like Google Cloud, Microsoft Azure, or AWS that operate data centers in regions with low emissions and choose server-types for applications with the lowest emissions for the computing power that you need.
• Maximize Efficiency: Optimize server usage to minimize waste. Reducing idle capacity and improving utilization rates can significantly lower emissions.
• Set Clear Sustainability Goals: Define targets for reducing Scope 3 emissions and integrate these objectives into the company’s broader sustainability plan.

The power of location in driving sustainability

Where data centers are located is not a minor operational detail; it is a strategic decision with profound implications for sustainability. The vast differences in CO₂ emissions between facilities make it clear that this is an area where companies can make impactful changes.

The Corporate Sustainability Reporting Directive serves as a compelling motivator to adopt sustainable practices early. By addressing these challenges now, businesses can achieve a reduced carbon footprint, long-term cost savings, and enhanced competitive positioning. Ultimately, sustainability is not just a regulatory requirement – it is an opportunity to lead responsibly and innovate effectively.

Internet entrepreneur and UBIRCH CEO Stephan Noller is a psychology graduate and serial entrepreneur from Cologne. He is an expert in data-driven business models, a sustainability enthusiast and co-founder of the companies nugg.ad, Calliope, trackle and Ubirch. Along with a consortium, the company developed the digital COVID certificate for Germany under the EU's initiative. Now the internet entrepreneur, who likes to describe himself as a technology and tinkering nerd, is focusing on the fight against climate change with his ESG Data ExchaAnge Network. This is intended to help companies and their suppliers to fulfil the EU requirements for ESG data in sustainability reports in a simple and audit-proof manner.

As director of Marketing/PR at UBIRCH, Cosima Gräf has led the Marketing department since 2020 and is an expert in B2B software marketing. She has many years of experience in various positions, including for Questback.
 

The German technology company UBIRCH has created the ESG Data Exchange Network, allowing companies and their suppliers to easily and audit-proof meet the EU's requirements for ESG data in sustainability reports starting in 2024. It is thus a key CSRD process component and enables transparency and climate protection through the exchange of machine-readable, operationally deployable ESG data. Both data suppliers and data collectors can thereby reduce costs and become more efficient. The ESG Data Exchange Network aims to provide Scope 3 CSRD data for all customers or uniformly receive it from all suppliers. UBIRCH specializes in the digital verification of data and was founded in 2016. Along with a consortium, the company developed the digital COVID certificate for Germany under the EU's initiative.