The Data Center Problem for Sustainable Investing

Sustainable investors have a data center problem. Technology stocks have long been major holdings in many sustainable investing strategies, thanks to their generally benign environmental profile. But as Big Tech (and much of the tech industry) has been swept up in the artificial intelligence boom, many of the most widely owned stocks now carry an environmental risk, thanks to data centers.

Big Tech has had a favorable emissions profile compared with heavy industry, in part because it uses renewable energy and has set major targets for emissions cuts. That has made it a heavy favorite among sustainable investing strategies. But the massive data centers used to train and run AI models require vast amounts of energy and water to power and cool them, raising concerns that companies will miss their emissions targets. Additionally, many communities are pushing back against the construction of these massive buildings, arguing that the structures harm their quality of life.

“There’s an inherent friction between energy-hungry data centers and responsible investors,” says Anthony Eames, managing director of responsible investment strategy for Calvert, an investment firm owned by Morgan Stanley.

The challenge is that the AI buildout has stoked economic growth, meaning investors of all stripes need exposure to track or beat the market. In addition, the hunger for electricity is driving a renewed push for alternative energy solutions and energy efficiency products, ranging from geothermal power to battery storage.

Against this backdrop, many sustainable fund managers see more reasons to own the stocks at the heart of the data center build than reasons to avoid them. They also say they are pressing companies to stick to their emission reduction pledges and disclose any additional risks, such as those related to their impact on communities and other stakeholders. Plus, not owning these stocks, which include most of the stock market’s biggest names, could put them at a significant competitive disadvantage. Heavy weightings of tech stocks have often been the key to periods of outperformance among sustainable funds. “We’re investors. We’re here to make money for our clients,” says Marian Macindoe, managing director, sustainable investment strategy at Parnassus Investments.

Sustainable Funds Are Less Exposed to Data Centers than Conventional Investors

At the core of the challenge for sustainable strategies are holdings in the big hyperscalers—cloud service providers that own and operate giant global data centers. Amazon AMZN, Alphabet GOOGL, and Microsoft MSFT plan to expand their data centers by a combined 78% in the coming years, 63% of which is planned in water-scarce regions, according to Sustainalytics. Meta Platforms META plans to invest $600 billion in data centers over the next several years—the largest stated investment among the four companies. “That could expose them to considerable operational risks and public scrutiny in the years ahead,” writes Sustainalytics.

Here’s a look at how the average sustainable big-cap fund is exposed to Big Tech:

Sustainable funds are less exposed than traditional funds when it comes to hyperscalers, partly because they have a smaller average weighting in Meta. Indeed, Meta is the 16th-largest holding among sustainable large-cap funds, compared with the 9th among traditional funds.

Tech holdings are critical to sustainable investors. The sector accounts for a larger percentage of their returns than it does for traditional funds. According to Morningstar data, tech stocks accounted for 31.7% of the Morningstar US Sustainability Index but 40.0% of its return for the 12 months ended July 8, 2026. By comparison, tech was 33.8% of the Morningstar US Market Index and 31.3% of its return.

Why Sustainable Funds Still Own Data-Center-Related Stocks

Despite the environmental concerns, sustainable fund managers say there are multiple reasons to own the stocks. For starters, they say hyperscalers tend to have better sustainability practices than other companies in the stock market because they have carbon-neutral targets and heavily use renewables. Google, Microsoft, Amazon, and Meta all fare well against the software and services sector in terms of managing sustainability risks, according to Sustainalytics. For example, for the nine years ending Dec. 31, 2025, Google matched 100% of its electricity consumption with renewable energy purchases.

“Most of these companies are doing a pretty good job in renewables, which is often the easiest way to lower emissions. But the energy use for these AI data centers is unprecedented,” says Sustainalytics analyst Melissa Bird.

Investors are pressing companies to disclose risks besides environmental ones. “We know how to measure physical issues, but what’s really throwing people off is the hard stuff about the broader economic and other anxieties that damage your social license [to build data centers],” says Simon Rebbechi, vice president of sustainable strategies at Calamos Investments.

Energy and Water Efficiency a Main Focus

The focus on energy efficiency is seen as key. With energy accounting for 30%-40% of data center costs, “this is a major catalyst for energy and water efficiency,” says Jason Qi, tech analyst at Calvert. For example, Nvidia NVDA is helping data centers improve energy efficiency by supplying platforms like Blackwell, which deliver more computing performance per watt. Qi says Microsoft is circulating water between servers and chillers through a closed-loop system that the firm claims consumes zero water.

“As the broader energy transition advances, we believe innovation and efficiency will win out,” says Calvert’s Eames.

This year, sustainable funds have been heavy buyers of names that make AI infrastructure more sustainable and resilient, such as chip specialist Advanced Micro Devices AMD, storage outfit Seagate STX, and engineer Eaton ETN, according to Sara Mahaffy, head of global sustainability strategy research at RBC Capital Markets. In addition, “sustainable fund ownership in grid, nuclear power, and digital security themes climbed to all-time highs as of 1Q26, all of which are reflecting AI/data center narratives,” she writes.

Calvert utilities analyst Jonathan Pragel says, “The power market is at an inflection point on emissions.” One beneficiary might be Xcel Energy XEL, which is on track to lower carbon emissions and is replacing coal with natural gas and wind. Since 2007, Xcel has closed 23 coal units. “This is the gold standard in the just transition,” says Pragel. He also highlights Idcacorp IDA, which is moving to convert its coal to natural gas by 2030 while keeping customer bills 25% below the national average. He says that will cut emissions by 75% by 2045, which is “best-in-class decarbonization.”

In addition, the managers point to the resurgence of nuclear power to meet data center energy needs. Meta, Alphabet, and Amazon have signed contracts for nuclear power for data centers. “Going into 2030, we do see nuclear likely becoming commercial,” Pragel says.

Investors Push Big Tech to Meet Environmental Goals

Managers also point to their efforts to push companies on governance around data centers and broader environmental concerns. That includes asking companies to have AI governance policies and disclose how they’ll meet sustainability pledges, given outsized water and power demands.

Parnassus Investments is conducting engagements around AI practices. One type involves talking to hyperscalers about climate, energy, and water impacts. The second involves talking to deployers of technology. After negotiations with Parnassus and other investors on emissions targets, in January, Microsoft launched a “Community First AI Infrastructure” initiative, which it said “reflects our sense of civic responsibility, as well as a broad and long-term view of what it will take to run a successful AI infrastructure business.”

Investors are also making their voices known through proxy voting. In 2025, proposals at Amazon, Meta, and Alphabet asking for clarity on how the companies are executing their climate strategies and plans to meet their net zero targets “were among the most supported climate resolutions of the year in the US,” writes Sustainalytics analyst Matteo Felleca. None received majority support, but “their relatively high support levels suggest that investors view data center-driven emissions as a pressing climate issue for the sector and they want to know how companies intend to meet the growing demand while maintaining their climate commitments.”