The latest research from First Street, a leading climate data and risk analytics firm, has indicated that 79% of global data centre capacity is exposed to elevated acute climate hazards, including flooding, wind, and wildfire risks that can disrupt operations, increase downtime, and increase insurance and repair costs.
The firm, which models how climate change affects physical infrastructure and property values globally, in the latest study shows that climate risk is emerging as a critical factor in data centre investment performance, with physical hazards increasingly shaping operating costs, infrastructure reliability, financing conditions, and long-term asset values across global markets.
A news report on Monday by Reinsurance News, a leading risk-underwriting online medium, disclosed that the research firm examined 97 global data centre markets and found that many of the industry’s largest and fastest-growing hubs are concentrated in locations exposed to flooding, extreme heat, wildfire, wind, and drought.
The research firm states that research findings are increasingly relevant for the insurance industry, which is seeing growing interest in the opportunities emerging from data centre risk.
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Reinsurance News recalled that recently, rating agencies have highlighted this trend, with a recent report from S&P suggesting that rising demand for data centre insurance coverage could generate $10 billion in new premiums in 2026.
According to the online medium, during Moody’s Ratings’ virtual media briefing last month, Brandan Holmes, Senior Credit Officer, noted that data centres represented a significant opportunity for commercial insurers and reinsurers but also posed risks.
Meanwhile, it reported that a new AM Best report described data centre projects as a “considerable opportunity” for the U.S. P&C insurance industry to develop innovative new property and liability coverages amid rising demand.
First Street noted that global data centre capacity has expanded rapidly over the past decade and is expected to nearly double again by 2030.
However, the firm clarified that while investors have traditionally focused on power availability, connectivity, land access, and demand growth, climate risk largely remained absent from many underwriting and valuation frameworks, despite its impact on uptime, operating costs, insurance availability, and infrastructure reliability.
First Street’s research findings further revealed that 54% of global data centre capacity was located in markets exposed to chronic climate stress, including extreme heat and drought, which increase cooling costs, reduce efficiency, and pressure operating margins, while exposure varies significantly across regions, reaching 89% of capacity in APAC, compared with 50% in the Americas and 46% in EMEA, highlighting meaningful differences in operating conditions.
According to the firm, the industry’s largest growth markets are also among its most climate-exposed. Key hubs including Northern Virginia, Johor, and Marseille sit in the highest climate-risk tier globally, while lower-risk Nordic markets rank among the least exposed.
A recent analysis from specialty Lloyd’s insurer MS Amlin also highlighted weather-related risks to data centres, noting that just over half (51%) of planned US data centre projects worth $670 billion are located in states at high risk of severe convective storms (SCS).
Commenting on the research findings, Chief Economist at First Street, Dr. Jeremy Porter, said: “Where you build a data centre determines a large share of what it will cost to run for the next 20 or 30 years. Climate is a big part of that: cooling, water, and reliability all depend on location. But most valuations still focus on growth and treat climate as a secondary concern.”
In his remarks, the firm’s Founder and CEO, Matthew Eby, further clarified: “Most underwriting for real assets still uses historical data, but the climate is no longer behaving the way the historical record would predict. As heat, drought, and water stress increase, outdated models simply don’t offer a complete view of risk anymore.
“Investors who incorporate these factors into underwriting and capital allocation decisions will be better positioned to identify resilient markets and avoid mispriced risk”, the expert added.
