EU Sustainability Regulations' Impact on Financial Services IT Infrastructure

Patrick Lastennet, Director of Business Development
August 29, 2023

EU Taxonomy, CSRD, and SFDR

Financial services enterprises doing business in the European Union (EU) are being impacted by the increase in sustainability regulations that have been passed to address the climate crisis.

These regulations include:

• EU Taxonomy: a classification system for environmentally sustainable enterprises
• Corporate Sustainability Reporting Directive (CSRD): strengthens the rules on social and environmental information that enterprises have to report
• Sustainable Finance Disclosure Regulation (SFDR): requires financial institutions to disclose the portion of their portfolio that includes “sustainable” investments

At a high level, sustainability regulation compliance creates two primary challenges for IT leaders in financial services:

• How can enterprises create more sustainable IT infrastructure?
• How can enterprise IT leaders comply with sustainability regulations?

Enterprises of all shapes and sizes can find it confusing trying to determine how these regulations will affect them. Enterprises are also increasingly deploying and scaling energy-intensive applications like artificial intelligence (AI), which creates even more pressure to identify sustainable energy sources.

The regulations are evolving in real-time, so nobody has all the answers.

However, IT leaders can set themselves up for success by understanding the goals of these sustainability regulations and making strategic partnership decisions that can help reduce complexity regarding reporting.

Evolving sustainability regulations in the EU

Three of the sustainability regulations that are top of mind for IT leaders in financial services doing business in the European Union are: EU Taxonomy, CSRD, and SFDR.

EU Taxonomy

The EU Taxonomy is a classification system that helps companies and investors identify "environmentally sustainable" economic activities to make sustainable investment decisions. The EU Taxonomy is meant to be a tool to help investors identify and promote a transition to a zero carbon future. It can also help guide funding towards solutions that tackle the climate crisis.

Corporate Sustainability Reporting Directive

The CSRD aims to further measure the "sustainability performance of companies, as part of the European green deal." The goal of CSRD is to modernize and strengthen the rules concerning the social and environmental information that enterprises have to report.

Sustainable Finance Disclosure Regulation

For the financial services industry, the SFDR requires these institutions to provide transparency on their sustainability risk in their investment processes and products. This includes asset managers, hedge funds, investment bankers, etc.

How can enterprises create more sustainable IT infrastructure?

IT leaders in financial services need to adopt a multi-pronged approach to sustainability, including addressing their IT infrastructure and enabling reporting.

Data allows enterprises to innovate and scale their technologies to better meet the needs of their customers. All of this data processing, however, especially from high-performance computing (HPC) and AI applications, consumes energy and adds to the associated emissions that can contribute to climate change. This increase in resource consumption is one reason IT leaders should consider the sustainability of their data center partners.

For Digital Realty, sustainability isn't only good for the planet — it’s good for business. Resource efficiency has repeatedly proven itself to have business value because using water and electricity more efficiently saves money and aligns with our customers’ priorities.

Digital Realty’s sustainability programs include:

• Sourcing new solar and wind projects to generate clean power for our data centers
• Reusing waste heat from data centers to heat surrounding areas
• Liquid cooling solutions for dense AI infrastructure deployments

How can enterprise IT leaders comply with sustainability regulations?

Fragmented IT architectures deployed over time across multiple data center vendors may complicate compliance with the increase in regional sustainability and regulatory requirements.

A strategic approach can help enterprises ensure compliance across their footprint and enable more streamlined reporting. By partnering with Digital Realty and centralizing their data center footprint on PlatformDIGITAL®, our global data center platform, enterprises can reduce the number of vendors they need to work with regarding compliance. This in turn can save time so that IT leaders can focus on business-critical objectives, like adopting new AI applications that extract value from data.

Digital Realty is committed to reaching ambitious targets for sustainable data centers, and we’ve dedicated an internal team to gather the latest information about evolving requirements. This is to ensure we are in a position to act positively to address sustainability and share insights with our partners.

Prioritize sustainability in your IT infrastructure strategy

The data center platform that IT leaders choose matters when it comes to sustainability.

As more and more data is processed, connected, and stored, financial services enterprises will continue to look for ways to offset their environmental impact. They should consider their partners strategically and align with leading organizations with shared sustainability values.

At Digital Realty, we're committed to resource efficiency and the transition to a low-carbon future. This is demonstrated through regular and transparent communication with stakeholders and is documented in our annual Environmental, Social, and Governance Report.

Digital Realty’s global footprint can help IT leaders in financial services reduce complexity when it comes to sustainability regulation compliance.

To learn more about our latest environmental, social, and governance (ESG) initiatives across Digital Realty’s global footprint, visit our ESG page.

Reach out to us to learn more about our sustainable data center solutions.