ESGFebruary 28, 2025

AI Energy Drain Among Issues Facing ESG Investors

Data center energy needs, human rights and plastic pollution are among trends for investors to watch, according to ISS ESG.

Reported by Michael Katz

Keeping up with the massive energy needs of data centers to support a surge in artificial intelligence and cryptocurrencies is among the main issues facing investors in environmental, social and governance assets, according to a report from Institutional Shareholder Services’ ISS ESG.

Human rights due diligence and potential international treaties regarding plastics pollution were also cited as trends investors should keep an eye on in 2025 in the report from ISS ESG, which, like CIO, is owned by ISS STOXX.

Citing the International Energy Agency, the report stated that data center electricity consumption could more than double to more than 1,000 terawatt hours in 2026 from 460 TWh in 2022, adding that this would account for 3% of the world’s electricity usage, up from 1.7%.

“AI as a technology may lead to greater energy efficiency and smarter allocation of computing workloads to minimize the carbon impact, but the aggregate energy use of companies with large data center operations is clearly growing,” the report stated.

The report noted that some technology companies are looking to satisfy their increasing energy needs using low-carbon energy sources such as nuclear power. However, it added that “taken together, the rise in data center electricity demand and focus on lower-carbon energy sources offers mixed signals as to whether large technology companies are transitioning in a manner consistent with Net Zero ambitions.”

Beyond energy issues, the report found that protection of human rights appears to be shifting from a voluntary commitment to a mandatory one: “With significant regulations already in place and more planned, many companies worldwide either already face or soon will face enforceable corporate due diligence duties related to human rights impacts along their global value chains.”

As an example, the report cited the European Corporate Sustainability Due Diligence Directive, which came into effect in July 2024 and is intended to address the need to standardize the European Union’s legal framework. The directive establishes a “corporate due diligence duty” covering human rights and environmental impacts, the report noted.

Concerns about “persistent” plastic pollution are also likely to be a major focus for ESG investors during 2025, according to the report. ISS cited an Organization for Economic Co-operation and Development report that found global plastic waste is expected to nearly triple by 2060, with approximately half ending up in landfills and only 20% expected to be recycled.

“The United Nations Plastics Treaty negotiations, which will continue into 2025, are seeking to address plastics pollution at the international level,” the report stated. “Possible treaty provisions on harmful chemicals in plastics may also have future legal implications for companies. Depending on its final form, the UN Plastics Treaty could increase the risks to companies and investors from plastic pollution.”