Desire for Data Centers Creates Carbon Dilemma for Property Investors

Technology companies, real-estate and infrastructure investors are pumping billions of dollars into the construction of data centers to meet soaring demand from AI and cloud computing. Data centers are among the most energy- and carbon-intensive assets in the digital economy and many operators are turning to renewable energy to help lower their emissions. Yet the industry’s rapid expansion still carries a significant carbon footprint, especially when the actual electricity mix in local grids is taken into account.¹

The growing carbon footprint matters for the real-estate industry. Data centers were the number-one target for property investors in 2025 according to the Urban Land Institute/PwC Emerging Trends in Real Estate report.² With the continued growth in carbon emissions from data-center assets, investors face a mounting challenge: How to align long-term climate commitments with exposure to a rapidly expanding, energy-intensive asset class that could raise both portfolio-emissions intensity and the cost of meeting decarbonization targets. Major institutional investors such as Brookfield Asset Management, The Goldman Sachs Group Inc., AXA S.A., CBRE Investment Management and Invesco Ltd. — all of whom rank among the top 20 global buyers of real estate — have committed to align their portfolios with global climate goals through science-based or net-zero targets.

Property investors spent more than USD 36 billion acquiring data centers in 2024 according to MSCI data, just shy of the record USD 39 billion in 2022. Moreover, data-center investment volume since 2020 eclipses the total invested in the period 2007-2019. Blackstone Inc., the world’s largest property investor, has invested more than USD 16 billion in data centers since the start of 2023, more than in any other property sector. Other major buyers of data centers include CPP Investment Board, DigitalBridge Group, Brookfield Infrastructure Partners L.P., La Caisse (formerly CDPQ) and KKR & Co. Inc.

From a sustainability perspective, a shift to property portfolios with a larger share of data centers would be a change versus those comprised of traditional real assets — offices, retail, industrial, etc. Using a series of assumptions based on average electricity usage, energy efficiency, grid emissions factors, etc., we estimate that all other things being equal, a 50-MW hyperscale data center would have an annual carbon footprint equivalent of around 100 energy-efficient office buildings, each of approximately 500,000 square feet.³ Such a difference emphasizes the dual challenge faced by property investors looking to acquire data centers — harnessing the potential for outsize returns as the sector witnesses almost exponential growth, while managing the carbon footprint such assets introduce to their portfolios.

Data as of September 2025. Source: MSCI  

Sales of data centers have climbed, but the majority of capital is targeting the sector through a development route. MSCI data shows that over 47 GW of additional data-center capacity is currently under construction, with an estimated end value (based on current property prices) of more than USD 550 billion. In the first half of 2025 alone, developers broke ground on more than 12 GW of additional capacity. The surge in construction means that global data-center capacity will increase by around 50% when these centers come online.⁴

But as data-center capacity expands, so does the pressure on energy systems. The growth in data-center demand has already strained grids in several regions. In Ireland, for instance, data centers accounted for 22% of electricity demand in 2024, up from just 5% in 2015.⁵  Globally, data centers account for around 1.5% of all energy consumption, more than the annual use of France.⁶ The International Energy Agency (IEA) estimates that data-center energy consumption will double from 1.5% of global capacity in 2024 to 3% by 2030, of which 40% will be generated by coal- and gas-fired power stations.⁷ As power demand continues to rise, data centers have become a significant and expanding source of carbon emissions.

Data as of September 2025. Source: MSCI 

Using assumptions for power usage effectiveness (PUE) and country-level grid emissions factors (GEFs),⁸ and drawing on MSCI data, we estimate the new capacity currently under construction could add 0.7% to global carbon emissions, based on 2024 baselines.⁹

Among the countries analyzed, Ireland shows the highest projected increase, with data centers under construction potentially adding up to 2.9% to national carbon emissions when they come online. The U.S., the global leader in data-center development, could see additional emissions equivalent to 2.6% of the country’s current annual level. Additional carbon emissions are also notable for Malaysia and the Philippines, where international data-center operators such as GDS Holdings Ltd and Blackstone-owned AirTrunk, hyperscalers (large cloud-service providers) like Amazon Web Services (AWS), and investors such as KKR have significant capacity under construction. Globally, the largest hyperscalers — Meta Platforms Inc., Microsoft Corp., AWS and Alphabet Inc. — account for much of the data-center space currently under construction.  

Estimate of future carbon emissions by data centers under construction as share of total current carbon emissions (tCO2e). Data as of September 2025. Source: Our World in Data, MSCI  

Major data-center operators, including large U.S. technology firms and real-estate investment trusts (REITs), have set climate goals that include powering their operations with renewable or low-carbon energy. Most pursue these goals through power purchase agreements (PPAs) or renewable-energy certificates (RECs), which allow them to match their electricity consumption with renewable generation, even when facilities remain connected to carbon-intensive grids.

While such agreements enable operators to report lower emissions and renewable energy use, data centers must run continuously and often rely on fossil-fuel-based grids when renewable power is unavailable locally or around the clock. For example, a data center may run off the gas-dominated grid in Virginia, while buying renewable credits based off hydropower from Pennsylvania or solar power from Texas — an approach that does not always reduce overall grid emissions.

Some technology firms are signing long-term contracts to secure low-carbon power. For instance, Google (Alphabet Inc.) agreed to a USD 3 billion, 20-year PPA with Brookfield for hydroelectric power in Pennsylvania, while Meta signed a similar 20-year deal with Constellation Energy Corp. to source electricity from a nuclear power facility in Illinois. Such agreements highlight an emerging shift toward securing a continuous low-carbon energy supply.

There is a clear contrast between the location-based and market-based GEFs reported by some of the biggest data-center operators, as shown in the chart below. The difference between the two metrics reflects the widespread use of RECs and PPAs to offset location-based emissions. For investors, this distinction helps explain why portfolios can show progress toward net-zero targets even when the underlying assets remain dependent on local electricity systems. 

More broadly, data-center operators are expanding their strategies beyond renewable offsets. Many are investing in on-site generation, locating facilities near new renewable projects, or adopting blended PPAs that draw from multiple energy sources to achieve 24/7 renewable coverage. 

Grid emissions factors by data-center operator. CyrusOne data for 2023; all other operators for 2024. Data as of August 2025. Source: company reports  

The data-center industry appears to be moving in a sustainable direction; however, the significant growth in data-center capacity is outstripping the provision of renewable energy.¹⁰ This growth creates a dilemma for institutional capital: Can data centers align with net-zero investment frameworks, or are they at odds with the sustainability ambitions of institutional investors?

Increasing exposure to data centers that are not powered by low-carbon energy raises the overall energy demand and carbon intensity of real-estate portfolios. Therefore, achieving alignment with portfolio-level climate targets becomes more complex, requiring greater reliance on renewable procurement, efficiency improvements or offsetting strategies. Moreover, accounting and disclosure standards are moving toward greater transparency and location-based reporting, which may further complicate portfolio-level decarbonization.¹¹

Ultimately, data-center investments may become a defining test of whether institutional investors can reconcile long-term climate commitments with the realities of digital transformation and whether the net-zero transition can keep pace with technological innovation.