Nearly $400bn of Global Data Centre Capacity at Risk from Climate Impacts

Data center climate risk now threatens $388 billion in global assets

Physical climate hazards could wipe out nearly 40% of the value locked in data centers worldwide. That exposure totals $388 billion, according to research published by Schneider Electric in 2025. The analysis reveals a fundamental problem: asset valuations don’t account for flooding, wildfire, or extreme heat that can knock facilities offline or destroy infrastructure entirely.

For UK businesses relying on cloud services, AI platforms, or hosted systems, this risk isn’t abstract. When a data center fails, operations stop. Supply chains stall. Customer data becomes inaccessible. The financial sector, manufacturers using real-time inventory systems, and retailers running e-commerce platforms all depend on infrastructure now shown to be increasingly fragile.

Climate change is hitting industrial sites faster than most financial models predicted. Data centers consume vast amounts of electricity and require constant cooling. Consequently, they cluster near power grids and water sources, often in coastal zones or river valleys where flood risk is rising. Meanwhile, heatwaves push cooling systems beyond design limits, forcing shutdowns during peak demand.

This article examines the scale of climate exposure across the data center sector, explains why current valuations miss the risk, and outlines what UK businesses should consider when assessing their own digital infrastructure dependencies.

Schneider Electric’s $388 billion exposure figure explained

Schneider Electric’s 2025 study quantified climate risk by modeling physical hazards against global data center portfolios. The research identified $388 billion in assets exposed to events such as flooding, wildfires, and prolonged heat. Notably, this represents 38% of total data center value worldwide. The figure is sometimes rounded to $400 billion in media coverage, though the precise estimate remains $388 billion.

The methodology assessed how extreme weather threatens operational resilience and financial stability. For example, flooding damages electrical equipment and backup power systems. Wildfires destroy buildings and knock out grid connections. Heatwaves force facilities to throttle computing loads or shut down entirely to prevent equipment failure.

Schneider Electric’s analysis also measured how much risk could be reduced through targeted investment. Proactive adaptation measures, including improved cooling systems, flood defenses, and backup microgrids, can cut exposure by up to 39%. Therefore, the study doesn’t just highlight a problem. It demonstrates that the financial impact can be substantially lowered through engineering and planning.

This valuation gap creates what researchers describe as a blind spot for investors and operators. Assets appear secure on balance sheets, yet physical vulnerability remains unpriced. As extreme weather worsens, the mismatch between book value and actual risk grows wider.

80% of global capacity now sits in elevated risk zones

A separate analysis cited by CNBC found that nearly 80% of global data center capacity faces elevated risk from climate hazards. The figure comes from modeling conducted across thousands of sites worldwide, assessing exposure to flooding, fire, and other physical threats.

Research from XDI, the Cross Dependency Initiative, analyzed almost 9,000 data center locations to rank climate risk by region. Their 2025 report placed hubs in New Jersey, Hamburg, Shanghai, Tokyo, Hong Kong, Moskva, Bangkok, and Hovedstaden in the top 20 for projected climate damage by 2050. The analysis predicts that between 20% and 64% of data centers in these areas will face high physical damage risk within 25 years.

The Asia-Pacific region presents a particular concern. APAC is the fastest-growing market for new data center construction, driven by demand for cloud services and AI infrastructure. However, XDI’s research shows that more than one in ten APAC data centers already face high climate risk in 2025. By 2050, that figure rises to one in eight.

Coastal sites are especially vulnerable. Many data centers occupy low-lying industrial zones near ports or urban centers. Rising sea levels and increased storm intensity mean that sites currently considered safe may flood regularly within a decade. Similarly, facilities in California, Australia, and southern Europe face growing wildfire exposure as vegetation dries and fire seasons lengthen.

Insurance costs could triple or quadruple by 2050

Without significant investment in mitigation and adaptation, global insurance costs for data centers could triple or quadruple by 2050, according to XDI’s projections. Insurers are already repricing policies in high-risk regions, and some are withdrawing coverage altogether.

Property insurers assess risk based on historical loss data and forward-looking climate models. As extreme weather becomes more frequent and severe, premiums rise to reflect increased claims. For data centers, this trend is accelerating. Facilities in flood-prone areas now pay substantially higher rates, and operators in wildfire zones struggle to obtain affordable cover.

The insurance market’s response creates a feedback loop. Higher premiums push operators to invest in resilience measures such as elevated foundations, fire suppression systems, and hardened power infrastructure. However, those upgrades require capital that many operators haven’t budgeted. Consequently, some facilities remain underinsured, transferring financial risk directly to owners and investors.

For UK businesses using third-party data centers, this insurance squeeze has practical implications. Providers facing higher costs may pass those expenses on through increased hosting fees. Alternatively, operators may delay upgrades, leaving infrastructure vulnerable. Either outcome affects the reliability and cost of digital services that UK firms depend on daily.

Key facts about climate risk to data centers

• Schneider Electric’s 2025 research identifies $388 billion in global data center assets exposed to climate hazards, representing 38% of total sector value.
• Nearly 80% of worldwide data center capacity sits in zones with elevated risk from flooding, fire, or extreme heat, according to separate modeling cited by CNBC.
• Proactive adaptation measures can reduce climate risk exposure by up to 39%, potentially saving billions of dollars in damages annually.
• XDI’s analysis of almost 9,000 sites ranks major hubs in New Jersey, Hamburg, Shanghai, Tokyo, and Hong Kong among the top 20 for projected climate damage by 2050.
• More than one in ten data centers in the Asia-Pacific region already face high climate risk in 2025, rising to one in eight by 2050.
• Without mitigation investment, global insurance costs for data centers could triple or quadruple by 2050, forcing operators to absorb dramatically higher premiums or risk operating without adequate cover.
• Data centers contributed approximately 180 million tonnes of CO₂ emissions in 2024, accounting for 0.5% of global energy-related emissions, with projections rising to 0.8% by 2030 as AI demand accelerates.

Why current valuations ignore physical climate exposure

Traditional asset valuation models for data centers focus on revenue potential, location advantages, and technical specifications. Financial analysts assess factors such as power capacity, network connectivity, and proximity to major markets. However, most models don’t incorporate long-term physical climate risk.

This gap exists partly because climate impacts unfold over decades, while investment horizons typically span five to ten years. Furthermore, historical weather data used in risk assessments no longer predicts future conditions accurately. A site that never flooded in the past 50 years may flood repeatedly over the next 20 as rainfall patterns shift and sea levels rise.

Insurance markets are beginning to correct this blind spot faster than equity or debt markets. Underwriters now use forward-looking climate models that project changes in hazard frequency and severity. Consequently, premiums reflect future risk more accurately than asset prices do. This creates a disconnect where a facility’s insurance cost signals vulnerability that its market valuation ignores.

For operators and investors, the result is a hidden liability. Assets that appear financially sound may face escalating costs for protection, repair, and business interruption. When extreme weather strikes, the gap between insured value and actual replacement cost becomes starkly visible. Sites may be written down sharply, or abandoned entirely if rebuilding costs exceed residual value.

Operational and financial consequences for UK businesses

UK companies using cloud services, software-as-a-service platforms, or hosted infrastructure are indirectly exposed to data center climate risk. When a facility fails, services go offline. For businesses operating just-in-time supply chains, managing real-time customer data, or running e-commerce platforms, even brief outages cause immediate revenue loss.

Consider a UK manufacturer relying on cloud-based inventory management. If the data center hosting that system floods, the manufacturer loses visibility into stock levels, supplier schedules, and production planning. Orders may be delayed or missed entirely. Customers experience service failures. Financial systems may become inaccessible, preventing invoicing or payment processing.

The financial sector faces similar exposure. Banks, insurers, and payment processors depend on data centers for transaction processing, customer records, and regulatory reporting. A prolonged outage doesn’t just disrupt operations. It triggers compliance breaches, customer complaints, and potential regulatory fines. Moreover, reputational damage from service failures can take years to repair.

Retailers operating online channels are equally vulnerable. E-commerce platforms hosted in climate-exposed data centers risk going dark during peak trading periods. If a heatwave forces a facility shutdown during Black Friday or the Christmas season, the revenue impact is immediate and substantial. Customers switch to competitors, and market share erodes.

Businesses should therefore assess where their critical systems are hosted and what climate risks those locations face. Providers may not volunteer this information, so procurement teams need to ask direct questions about physical resilience, backup capacity, and disaster recovery plans. Additionally, contract terms should specify service level agreements that account for climate-related outages and detail compensation for failures.

Adaptation measures that reduce exposure by nearly 40%

Schneider Electric’s research demonstrates that targeted investment in resilience can cut climate risk exposure by up to 39%. These measures include improved cooling systems, flood defenses, backup power infrastructure, and fire suppression technology.

Enhanced cooling systems help facilities cope with rising temperatures. Traditional air conditioning struggles when external temperatures exceed design limits. Consequently, operators are installing liquid cooling, which dissipates heat more efficiently and operates reliably in hotter conditions. This technology also reduces energy consumption, lowering both carbon emissions and operating costs.

Flood defenses range from simple measures such as raising electrical equipment above flood levels to complex systems including perimeter barriers, pumps, and drainage improvements. For coastal sites, some operators are relocating critical infrastructure to upper floors or installing watertight enclosures around power systems. These adaptations can prevent total facility loss during flood events.

Backup power systems protect against grid failures caused by extreme weather. Microgrids with on-site generation and battery storage allow facilities to operate independently when external supply is disrupted. This resilience is increasingly valuable as climate events stress national grids, causing cascading failures across regions.

Fire suppression technology has advanced significantly in recent years. Modern systems detect smoke and heat earlier, suppress fires faster, and protect equipment more effectively. For sites in wildfire-prone areas, external water supplies, fire-resistant building materials, and defensible perimeters reduce vulnerability.

These investments require upfront capital but generate long-term savings through reduced insurance premiums, fewer outages, and lower repair costs. For UK businesses evaluating data center providers, asking about resilience investments provides insight into long-term reliability and cost stability.

Carbon emissions from data centers compound climate risk

Data centers contributed approximately 180 million tonnes of CO₂ emissions in 2024, representing 0.5% of global energy-related emissions. However, that figure is projected to rise to 0.8% by 2030 as demand for AI infrastructure accelerates. This creates a feedback loop where the sector both drives climate change and suffers from its consequences.

The energy required to power servers, storage systems, and cooling equipment comes primarily from fossil fuel sources in many regions. As AI training and inference workloads expand, electricity consumption surges. The International Energy Agency notes that data center electricity demand could double between 2022 and 2026.

For UK businesses, this connection matters because it links digital infrastructure choices to broader climate commitments. Companies targeting net zero emissions must account for the carbon footprint of their cloud services and hosted systems. Procurement decisions should therefore consider not just cost and performance but also the energy sources powering data centers.

Providers increasingly offer renewable energy options, hosting facilities in regions with abundant wind, solar, or hydroelectric power. However, claims about green energy require scrutiny. Some providers purchase renewable energy certificates without actually using clean power at the facility level. Therefore, businesses serious about reducing their digital carbon footprint should verify how energy is sourced and consumed.

Further information from official sources

The UK government provides guidance on climate adaptation and infrastructure resilience through the Department for Energy Security and Net Zero, which publishes resources on energy infrastructure risk and mitigation strategies.

The UK Climate Change Risk Assessment offers detailed analysis of physical climate risks to critical infrastructure, including digital systems and energy networks. This assessment is updated every five years and provides sector-specific projections.

For businesses assessing their own climate risk exposure, the Cambridge Institute for Sustainability Leadership publishes research and tools for evaluating supply chain and operational vulnerabilities to extreme weather.

The International Energy Agency’s analysis of data centers provides global context on energy consumption trends and efficiency improvements.

Companies seeking to improve their understanding of carbon reporting and climate-related financial risk can access training and compliance support through SBS compliance services, which cover ESG reporting and regulatory requirements for UK businesses.