The volume of digital information available today is staggering. EMC Corporation (NYSE:EMC), in its most recent Digital Universe Survey, estimates that the amount of information created and replicated in 2011 alone surpassed 1.8 zettabytes, or 1,800,000,000,000,000,000,000 bytes—an incomprehensibly large number that roughly equates to nearly 9,000 times the amount of printed information in the entire world.1 What’s more, EMC calculates that the amount of electronic information in the world doubles every two years. As the sheer volume of data continues to grow, the way in which companies manage this information is changing. More and more of this information is being stored and accessed over “the cloud,” a term used to describe online platforms and services that store information in large data centers, rather than an organization’s own information technology (IT) infrastructure. Gmail,, streaming music services such as Pandora, and file sharing sites including DropBox are all examples of services offered through cloud computing.

According to a 2011 Carbon Disclosure Project (CDP) report, U.S. companies, taken as a whole, are expected to increase their expenditures on cloud computing from 10% to 70% of their total IT spend by 2020. This transition has the potential to reduce a company’s energy consumption and reduce costs because cloud computing allows companies to purchase only the computing power they need, when they need it, thus avoiding idle capacity. The CDP reports that the expected increase in cloud computing could prevent 85.7 million tons of carbon dioxide emissions in 2020, a 50% reduction compared to having no cloud at all. Such a reduction in emissions could save companies an aggregate of $12 billion annually.2

However, the transition to the cloud also presents environmental issues, particularly with regard to energy use. Behind the cloud lie massive data centers—large, industrial facilities that house information accessed over the Internet. While individual organizations may save money and avoid greenhouse gas emissions by using cloud services, the amount of energy used to run the data centers behind them is immense. In fact, data centers currently consume roughly 2% of all global electricity, a figure that is growing at 12% annually.3 According to an April 2012 report by Greenpeace, if the cloud were a country, it would have the fifth largest electricity demand in the world.4 One large data center can consume as much electricity as 80,000 homes.

Since data centers require so much electricity, energy management is a key issue for companies that operate these facilities. According to a report published by Datacenter Dynamics, a business-to-business technology information provider, 44% of survey respondents believed that increased energy costs would significantly impact their data center operations within 12 months. To date, companies have largely mitigated the risks of rising energy costs by investing in energy efficiency upgrades to their data centers. For example, in 2012, Google (NASDAQ: GOOG) announced plans for its new Taiwan facility to use a technique known as thermal energy storage to cool Internet servers, a process whereby the company freezes water at night when electricity rates are lower and uses the ice to dissipate heat during the day.5 In January 2010, the U.S. Department of Energy also awarded nearly $50 million in grants to various IT companies to implement energy saving technology in data centers.6

While investments in energy efficiency may lessen the risks of rising electricity costs, companies must also address the source of the electricity they use to address air and greenhouse gas emissions. Greenpeace reports that, industry-wide, “there is a disproportionate focus on energy efficiency metrics over carbon footprint and energy sources.”7 The location of a data center is largely driven by access to reliable, inexpensive electricity, and the fuel mix used to generate that electricity varies significantly by region. As an example, North Carolina and Virginia have become hosts to many large data center facilities owned by Apple (NASDAQ: AAPL), Facebook, Google, and others. However, 60% of the electricity in this region is generated using coal, a major contributor to air pollution, higher than higher than U.S. national average.8 In contrast, data centers located in Quincy, Washington, draw from a large supply of low-cost hydro power that was underutilized following the decline of the region’s aluminum industry. Companies operating data centers in this region include (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT). In February 2012, a startup called Verne Global opened a data center in Iceland9 to take advantage of the country’s low-cost supply of nearly 100% renewable electricity.10 Among the company’s first clients is GreenQloud, a cloud computing company that offers “100% carbon neutral” services. Companies such as Verne Global have helped to jumpstart a new data export industry in Iceland using the three fiber-optic cables linking the island nation to North America, Scotland, and Denmark.

Unfortunately, disclosure of environmental risks and opportunities is fairly weak among companies that operate large data centers. Greenpeace notes that “the IT industry often points to the cloud or cloud computing as the new, green model for our IT infrastructure needs, but few companies provide data that would allow us to objectively evaluate these claims.” While companies are generally quick to highlight their use of on-site renewable energy or energy efficiency upgrades, few companies disclose detailed performance data regarding their overall energy consumption and environmental impact. To address this issue, Pax World co-filed a shareholder resolution at in 2012 seeking more comprehensive environmental disclosure, particularly with respect to the company’s data center operations.

As for companies in this industry, Pax World seeks to invest in those that demonstrate a high level of transparency regarding environmental impact. Pax World believes that the companies with the strongest environmental profiles disclose information about policies and programs aimed at increasing energy efficiency and the use of low-carbon energy sources. For example, in May 2012, Microsoft announced that it would become carbon neutral across all of its operations including data centers beginning in fiscal year 2013. Given the volatility of worldwide energy prices and the potential regulatory risks associated with climate change, Pax World believes that companies demonstrating similar commitments alongside strong disclosure will be better positioned to capture the opportunities of effective energy management in the future.

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The issues highlighted above are illustrative and do not necessarily reflect the full range of the social, environmental or governance criteria Pax World may apply in analyzing a particular security for investment. The availability of information about a company, issues associated with a particular industry, changing social conditions or other circumstances may affect the manner in which Pax World’s sustainability criteria are applied in a particular.