Digital Realty Trust (Digital Realty) is a real estate investment trust (REIT) that specializes in owning, operating, and investing in carrier-neutral data centers across the globe. As of December 31, 2019, the company owned interests in 225 operating data center facilities, totaling 34.5 million rentable square feet in the United States, Europe, Asia, Canada, and Australia. As one of the largest data center operators globally, Digital Realty has made significant commitments to sustainability and taken remarkable strides to achieve sourcing 100% renewable electricity as a Scope 2 emission reduction strategy. Their commitments include - joining the Science-Based Targets Initiative (SBTi); aiming to reduce direct and indirect emissions (Scope 1 and 2) by 64% by 2030 (from a 2018 baseline); and pledging to make their EU data centers climate neutral by 2030 as a member the EU Climate Neutral Data Centre Pact.
Employing A Well Defined Renewable Energy Procurement Strategy
Digital Realty’s progress is the result of a well defined renewable energy strategy. In 2021, they achieved 64% renewable energy coverage globally, primarily through Power Purchase Agreements (PPAs) and retail supply contracts. Their PPAs include a 118 MW of solar and wind energy to support its data centers in Georgia and Texas, and a 158 MW of new solar power in California and Georgia - just announced in May of 2022. Additionally, the company subscribed to Georgia Power's Customer Renewable Supply Procurement program, receiving 28 MW of new solar supply to support its Atlanta data center portfolio. Each of these approaches has helped Digital Realty advance its progress toward 100% renewable electricity and its 1.5-degree C-aligned SBTi commitment.
The company’s strategy is not just about good business. "The climate crisis, sustainability, diversity, equity and inclusion are some of the most critical issues facing society today," according to Aaron Binkley, VP Sustainability, Digital Realty. "How we respond to these challenges as a business is something we take extremely seriously." Binkley also believes that the prevalence of data centers as “the central nervous system of the global digital economy, [means that] we have a responsibility to act. We're proud of the work we're doing in this area, but know we need to go further, push the boundaries, and accelerate our efforts across the ESG agenda."
Maintaining the 100% Renewable Target has Potential Risks
In a 2020 interview on MSNBC’s Mad Money with Jim Cramer, former Digital Realty CEO, BIll Stein noted that “we’re focused on sustainability because it matters to our customs and because we think it’s the right thing to do.” He added that the company is “absolutely committed to delivering sustainable growth for our customers, our shareholders and our employees.”
However, Digital Realty’s 2020 ESG Report identified that there are potential risks to maintaining the 100% renewable electricity target. One such risk is changing customer demand for low carbon and renewable power supplies, which may lead customers to self-perform and procure their own renewable energy. This increased demand is not predicted to change anytime soon, and it’s expected to add even more pressure to Digital Realty’s renewable energy procurement efforts, making them both increasingly necessary and even more complex.
The Impact of RECs with Additionality on Digital Realty’s Strategy
While Digital Realty has made significant progress in renewable energy procurement, incorporating Renewable Energy Certificates (RECs) with additionality into their strategy could further improve their efforts as customer demand continues to increase. RECs with additionality can have a number of positive impacts:
1. Increasing the subsidization of renewable energy projects needed to speed up the grid’s transition to renewable energy;
2. Mitigating costs, while removing complexity and risk over time typically associated with renewable energy procurement using Virtual Power Purchase Agreements (VPPAs) and PPAs;.
3. Enhancing the company's ability to make a more impactful marketing claim for sustainability purposes when the use of traditional RECs is a part of the renewable energy procurement strategy; and
4. Providing scale to their emission reduction strategies needed to cover increased consumption of megawatt hours (MWh) of electricity as their business continues to grow.
In conclusion, Digital Realty Trust has set a high bar with its commitment to sustainability by sourcing renewable energy and reducing its Scope 2 emissions. By incorporating RECs with additionality into their strategy, the company can further enhance its positive impact on the environment and continue to lead the data center industry in sustainable practices.