Data centers are the backbones of an array of disruptive technologies, including cryptocurrency mining, cybersecurity, cloud computing, and many more.

The thing is, data centers require hefty amounts of electrical power, and as such, some data centers teeter on the brink of not being environmentally friendly. Thanks in large part to the environmental, social, and governance (ESG) movement, data centers are prioritizing green energy concepts, but not all real estate exchange traded funds are levered to that trend.

Investors looking for inroads to the ESG-meets-data-center trend might want to give the ALPS Active REIT ETF (NASDAQ: REIT) a look.

“We see data centers being mission-critical and often overlooked by investors when discussing the sustainability profile of the ICT [information and communication technology]  sector,” said Barclays analysts in a recent note.

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Why REIT Is Relevant

The introduction of ESG to the data center world is imperative because these venues need to run around the clock and have jaw-dropping electrical power and water needs as a result.

“Barclays said that data centers make up roughly 1.5% of electricity consumption worldwide, and power costs amount to some 70% of total operating costs. Data centers also consumed an estimated 660 billion liters of water in 2020, which is up from 626 billion liters in 2014,” reports Pippa Stevens for CNBC.

Data center operators Equinix and Digital Realty Trust are among the real estate names that could benefit from the “greenification” of data centers because more tech companies may view it as environmentally prudent to outsource data center needs.

Equinix (NASDAQ:EQIX) is REIT’s largest holding at a weight of 8.48%. Digital Realty Trust (DLR) isn’t a member of the ETF’s lineup, but REIT is actively managed so it’s possible that this name eventually finds its way onto the ETF’s roster.

Equinix, which runs 230 data centers, “recognizes its environmental imperatives, and has made good progress by articulating targets, issuing green bonds, and attaining green certification for 69% of its square footage,” according to Barclays.

Equinix and Digital Realty Trust are the two largest data center REITs by market capitalization. Currently, there are just five publicly traded companies in this space, and Equinix is the only one residing in the REIT lineup.

Other REIT ETFs include the Schwab US REIT ETF (NYSEArca: SCHH) and the Pacer Benchmark Data & Infrastructure Real Estate SCTR ETF (SRVR).

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.