Unsubscribe

Confirm you would like to unsubscribe from this list

Remove strategy

Confirm you would like to remove this strategy from your list

Welcome to Thornburg

Please select your location and role to help personalize the site.
Please review our Terms & Conditions

TERMS AND CONDITIONS OF USE

Please read the information below. By accessing this web site of Thornburg Investment Management, Inc. ("Thornburg" or "we"), you acknowledge that you understand and accept the following terms and conditions of use.

Disclaimers

Products or services mentioned on this site are subject to legal and regulatory requirements in applicable jurisdictions and may not be licensed or available in all jurisdictions and there may be restrictions or limitations to whom this information may be made available. Unless otherwise indicated, no regulator or government authority has reviewed the information or the merits of the products and services referenced herein. Past performance is not a reliable indicator of future performance. Investments carry risks, including possible loss of principal.

Reference to a fund or security anywhere on this website is not a recommendation to buy, sell or hold that or any other security. The information is not a complete analysis of every material fact concerning any market, industry, or investment, nor is it intended to predict the performance of any investment or market.

All opinions and estimates included on this website constitute judgements of Thornburg as at the date of this website and are subject to change without notice.

All information and contents of this website are furnished "as is." Data has been obtained from sources considered reliable, but Thornburg makes no representation as to the completeness or accuracy of such information and has no obligation to provide updates or changes. Thornburg disclaims, to the fullest extent of the law, any implied or express warranty of any kind, including without limitation the implied warranties of merchantability, fitness for a particular purpose and non-infringement.

If you live in a state that does not allow disclaimers of implied warranties, our disclaimer may not apply to you.

Although Thornburg intends the information contained in this website to be accurate and reliable, errors sometimes occur. Thornburg does not warrant that the information to be free of errors, that the functions contained in the site will be uninterrupted, that defects will be corrected or that the site and servers are free from viruses or other harmful components. You agree that you are responsible for the means you use to access this website and understand that your hardware, software, the Internet, your Internet service provider, and other third parties involved in connecting you to our website may not perform as intended or desired. We also disclaim responsibility for damages third parties may cause to you through the use of this website, whether intentional or unintentional. For example, you understand that hackers could breach our security procedures, and that we will not be responsible for any related damages.

Thornburg Investment Management, Inc. is regulated by the U.S. Securities and Exchange under U.S. laws which may differ materially from laws in other jurisdictions.

Online Privacy and Cookie Policy

Please review our Online Privacy and Cookie Policy, which is hereby incorporated by reference as part of these terms and conditions.

Third Party Content

Certain website's content has been obtained from sources that Thornburg believes to be reliable as of the date presented but Thornburg cannot guarantee the accuracy, timeliness, completeness, or suitability for use of such content. The content does not take into account individual investor's circumstances, objectives or needs. The content is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services, nor does it constitute investment advice and should not be used as the basis for any investment decision.

Suitability

No determination has been made regarding the suitability of any securities, financial instruments or strategies for any investor. The website's content is provided on the basis and subject to the explanations, caveats and warnings set out in this notice and elsewhere herein. The website's content does not purport to provide any legal, tax or accounting advice. Any discussion of risk management is intended to describe Thornburg's efforts to monitor and manage risk but does not imply low risk.

Limited License and Restrictions on Use

Except as otherwise stated in these terms of use or as expressly authorized by Thornburg in writing, you may not:

  • Modify, copy, distribute, transmit, post, display, perform, reproduce, publish, broadcast, license, create derivative works from, transfer, sell, or exploit any reports, data, information, content, software, RSS and podcast feeds, products, services, or other materials (collectively, "Materials") on, generated by or obtained from this website, whether through links or otherwise;
  • Redeliver any page, text, image or Materials on this website using "framing" or other technology;
  • Engage in any conduct that could damage, disable, or overburden (i) this website, (ii) any Materials or services provided through this website, or (iii) any systems, networks, servers, or accounts related to this website, including without limitation, using devices or software that provide repeated automated access to this website, other than those made generally available by Thornburg;
  • Probe, scan, or test the vulnerability of any Materials, services, systems, networks, servers, or accounts related to this website or attempt to gain unauthorized access to Materials, services, systems, networks, servers, or accounts connected or associated with this website through hacking, password or data mining, or any other means of circumventing any access-limiting, user authentication or security device of any Materials, services, systems, networks, servers, or accounts related to this website; or
  • Modify, copy, obscure, remove or display the Thornburg name, logo, trademarks, notices or images without Thornburg's express written permission. To obtain such permission, you may e-mail us at info@thornburg.com.

Severability, Governing Law

Failure by Thornburg to enforce any provision(s) of these terms and conditions shall not be construed as a waiver of any provision or right. This website is controlled and operated by Thornburg from its offices in Santa Fe, New Mexico. The laws of the State of New Mexico govern these terms and conditions. If you take legal action relating to these terms and conditions, you agree to file such action only in state or federal court in New Mexico and you consent and submit to the personal jurisdiction of those courts for the purposes of litigating any such action.

Termination

You acknowledge and agree that Thornburg may restrict, suspend or terminate these terms and conditions or your access to, and use, of the all or any part this website, including any links to third-party sites, at any time, with or without cause, including but not limited to any breach of these terms and conditions, in Thornburg's absolute discretion and without prior notice or liability.

Decline

Give Us a Call

Fund Operations
800.847.0200

FIND ANOTHER CONTACT
ESG

ESG Initiatives in Chinese Data Centers

Nicholas Anderson, CFA
Portfolio Manager and Managing Director
11 Jun 2021
6 min read

Learn about the progress in ESG disclosure and challenges in procuring renewable energy for Chinese data centers.

ESG Disclosure and Renewable Energy for Chinese Data Centers

Thornburg has a long history of investing in the data center industry globally and was an early foreign investor in Chinese equities. In recent years these specialties overlapped as we investigated Chinese data center firms and established positions in two leading companies.

Data centers have immense power needs to run computer servers and powerful cooling systems. A modern hyperscale data center consumes up to 50 times more energy per square foot than a typical commercial office building.

Despite their heavy energy consumption, modern hyperscale data centers are much more energy efficient than traditional “on-premise” data centers or server rooms. For example, a 2020 study by Microsoft found its cloud operations were 52% to 79% more energy efficient than traditional cloud computing operations. Even as overall energy use grows, the shift of IT workloads from on-prem data centers to the public cloud reduces the energy intensity of the industry.

Cloud Computing and Climate Change

The structural shift to cloud is occurring across sectors and geographies and is driving rapid growth in data center demand. Consequently, data center energy demand has also grown rapidly. In China, the industry consumes a small but expanding portion of national electricity production. Data centers consumed about 1% of China’s total electricity in 2020 and the industry’s power consumption is growing over 60% per annum, according to the China Electric Power Enterprise Federation.

This energy use comes at a cost to the climate. Coal-fired power plants are the main source of power generation in China, so data centers’ electricity use has a large carbon footprint. The modern data center industry is concentrated around major cities such as Beijing, Shanghai, Shenzhen, and Guangzhou, where renewable sources are scarce and coal generation dominates the grid electricity mix. Our data center companies’ high energy use and large scope 2 carbon emission expose them to the risk of greater climate regulation and a market price on carbon.

Renewable Energy Targets for U.S. Cloud Companies

Our experience with Western data center companies informed our engagement with our Chinese investments. For instance, we knew major U.S. cloud companies had adopted bold renewable energy targets. Alphabet, Facebook, Microsoft, and Amazon all have ambitions to power their global operations with 100% renewable energy. These cloud companies are the main customer group for the independent data center industry. The U.S. data center companies have responded to their customers’ targets by stepping up renewable power sourcing and investing in energy efficiency.

Chart 1: Microsoft Cloud Operations Energy Efficiency

Source: Microsoft

Table 1: Renewable Energy Targets in U.S. Data Value Chain

Source: Company Reports

We observed that certain U.S. data center companies approached renewable energy sourcing early, proactively, and strategically. Equinix is the clear leader in this regard. In 2015, Equinix set a target of achieving 100% renewable sourcing and has steadily progressed toward that goal even as the size of its data center portfolio doubled. In 2019, Equinix purchased renewable energy for 92% of its global electricity consumption, as shown in Chart 2. Because renewable energy is not consistently available in all locations, Equinix has three channels for achieving this level of coverage: direct power purchase agreements, renewable energy certificates, and virtual power purchase agreements.

Chart 2: Electricity and Renewable Energy Coverage

Source: Equinix Sustainability Report FY2019

For Environmental, Social and Governance (ESG), Engagement Matters

Our engagement with the China data center industry has spanned three years. Over this period, we spoke with company CFOs and investor relations officers approximately once per quarter. In 2019, we conducted on-site due diligence in China, visiting data center facilities in Shanghai and Beijing and interviewing campus staff. In 2020, we began engaging with our Chinese data center investments on ESG issues. Our ESG engagement had two objectives: to encourage a greater level of ESG disclosure and to develop renewable energy sourcing strategies.

Historically, the industry has a poor record of disclosure on sustainability issues. For example, no publicly listed Chinese data center providers released an ESG report before 2020, and few even discussed sustainability issues as risk factors in their annual reports. In our conversations, our companies expressed the view that they were relatively early in considering ESG issues and therefore did not have much progress to report on. We believe that regular and consistent public disclosure is helpful because it focuses management attention on material risk factors and motivates progress, even from a low baseline.

Our second focus was to encourage companies to develop renewable energy sourcing strategies. Like their U.S. peers, the Chinese data centers’ largest customers are the local hyperscale cloud and internet companies, such as Alicloud, Tencent Cloud, and Baidu Cloud. However, unlike in the U.S., the Chinese cloud titans have not set company-wide renewable energy targets. We believe it is possible that Alibaba and Tencent could adopt renewable targets in the future. As these two companies are driving most of data center industry demand growth, we have encouraged our data center holdings to proactively investigate renewable energy sourcing strategies as a competitive differentiator.

Benefits of Greater ESG Disclosure

We are pleased that both of our Chinese data center holdings are releasing their inaugural sustainability reports. We communicated with management the material risk factors that we believe they should consider, referencing the relevant Sustainability Accounting Standards Board (SASB) risk factors and our investment experience with the U.S. data center industry.

From an internal perspective, we believe greater disclosure will focus management attention and motivate progress, including bringing accountability across the firm. From an external perspective, greater disclosure could expand the pool of potential investors and lower the companies’ cost of capital, which may provide an economic advantage in this capital-intensive industry.

While our engagement on renewable energy sourcing remains a work in progress, it has enhanced our understanding of the data center companies’ regulatory environment and supply chain constraints. We learned that renewable energy sources, such as wind, solar, and hydro, are more available in remote locations in China, far from where data center demand is concentrated in dense coastal cities.

This presents an investment challenge for managers, as data center companies located in tier 1 cities enjoy stronger barriers to entry and they own scarce, valuable assets. At this point, we believe these companies offer better investment value.

Currently, the companies’ ability to procure renewable energy in tier 1 cities is limited because they are reliant on the power mix available from the local grid. However, we believe that over time these companies will be able to increase their renewable sourcing following a similar playbook to Equinix. We expect our companies to evaluate green power purchase agreements, direct co- investments in renewable projects, and green energy certificates to offset their energy use.

In addition, we continue to push for greater disclosure to close the gap on sustainability metrics with competitors who are principally located in remote locations and therefore have readier access to renewable power sources.

Progress in ESG Disclosure and Renewable Power Sourcing in Chinese Data Center Companies

ESG considerations among Chinese data center companies are still in their early stages. But they are likely to track the progress of U.S. data center companies over time. This reinforces our investment thesis about the adoption of modern cloud services in China and presents an opportunity for our engagement to quicken the adoption of best practices.

Our engagements with management make us optimistic that the companies are approaching both ESG disclosure and renewable energy sourcing in a thoughtful and economically responsible manner. We intend to continue to engage with our portfolio companies and tap our experience from Western markets to share best practices.

We expect companies that show progress on improving ESG disclosure and increased renewable sourcing will be seen by their customers as differentiated solutions providers. ESG leadership in the data center industry can lead to competitive advantages by lowering the cost of capital and enhancing the customer value proposition.

The transition of information technology workloads from legacy on-premise server rooms to modern data centers not only presents a promising investment thesis, but also has a net positive effect on climate change mitigation efforts by improving the energy efficiency and lowering the carbon intensity of the information economy.

Discover more about:

Stay Connected

Subscribe now to stay up-to-date with Thornburg’s news and insights.
Subscribe

More Insights

The Fed’s Third Mandate: A Tool to Determine When Policy Pivots?

Co-Head of Investments Jeff Klingelhofer argues that the Fed's third mandate may help signal the timing of the next policy shift.

Public vs. Private Credit: How We Assess Both Opportunities

Portfolio Manager Ali Hassan walks us through the potential opportunities and pitfalls of private and public credit, along with what investors should consider.
Global Equity

Beneficiaries of Europe’s REPower Plan

As the European Union rethinks its energy supplies, we believe the shift away from Russian gas may create significant growth opportunities for investors.
Global Equity

Emerging Markets Confront Political Hurdles in the Near Term

Portfolio Manager Josh Rubin discusses significant political events in emerging markets that may impact investors.
International Growth

Blockchain on the Brink of an Investment Revolution

Portfolio Manager and Managing Director Sean Sun explains the paradigm shift around blockchain technology and the opportunities it presents for investors.

‘Pick-your-poison’: Wall Street sell-off resumes

Thornburg Portfolio Manager Sean Sun tells Reuters that increasing geopolitical issues leave investors few places to hang their hats.

Our insights. Your inbox.

Sign up to receive timely market commentary and perspectives from our financial experts delivered to your inbox weekly.
This field is for validation purposes and should be left unchanged.
Feedback