Making Connections

The future of data centre development: discussing regulations and AI with Clifford Chance

• Telehouse • Season 1 • Episode 16

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In this episode of "Making Connections," host Nick Layzell, Customer Success Director at Telehouse, is joined by Marianne Toghill, Head of UK Real Estate Construction at law firm Clifford Chance, and Sarah Draper, General Counsel and Chief Risk Officer at Telehouse. Together, they delve into the evolving regulations and AI’s impact on the data centre industry.

Marianne discusses the regulatory landscape, including planning permission, health and safety, and anti-bribery measures, while highlighting the importance of exceeding these standards to meet customer expectations. Sarah focuses on navigating the complex regulatory environment, emphasising transparency, resilience, and sustainability.

Listeners will gain insights into balancing regulatory compliance with innovation and sustainability, making this episode a must-listen for data centre professionals and those interested in the future of AI in the industry.

Visit telehouse.net for more information

Nick Layzel:

Hello and welcome back to another episode of making connections our series providing both informal and interactive discussions with industry leaders on the IT challenges and opportunities facing organisations today. I'm your host Nick Layzell, Customer Success director at Telehouse and to discuss today's topic, I'm joined by Marianne Toghill, head of UK Real Estate Construction at Clifford Chance, Maria. Hi,

Marianne Toghill:

Nick, great to meet you. So I'm a lawyer by profession. I'm actually a construction lawyer. And I have a particular interest and focus on data centres. I've been fighting in that space since the early noughties, would you believe. And I've seen the industry change massively over the last 25 years.

Nick Layzel:

Great to have you here with us today, Marianne. And I'm also joined by Sarah Draper General Counsel and Chief Risk Officer at Telehouse.

Sarah Draper:

Hello, Nick. I'm very pleased to be here. So yes, I'm also a lawyer by background but very early on in my career moved into risk management as well. And I also have a significant interest in ESG and sustainability. So I chair the ESG subcommittee for Telehouse.

Nick Layzel:

Thanks both for joining us today. The rules and regulations which surround the development and redevelopment of data centres are continuously evolving emerging technologies such as AI, artificial intelligence, AI having a significant impact on the industry, while sustainable innovations and the impact on supply chains are gradually introducing new rules. With this customer expectations are also evolving, especially alongside regulations, which specifically apply to them. So what do operators need to consider moving forwards? And Marianne? Do you have a view? Or could you tell us a little bit about what kind of regulations apply to the development of these new buildings? I guess they're evolving at a rapid pace? Firstly, is there a standard blueprint? Or is design a challenge?,

Marianne Toghill:

Well, that's a very wide question you've asked me. So lawyers are always slightly wary when they get asked a very wide question like that. Because rules and regulations vary massively, depending on where you're building the data centre. But there are themes that you can spot if you work on data centres in lots of different countries, themes revolve around regulations. And what we're really talking about here is regulations apply when you're building something. So I can think of a couple of sort of categories that jump out. So the first one is, before you start building anything, you've obviously got to get planning permission, or zoning, as it's called in lots of other countries, and most people listening to this podcast will understand you know, know about that it's not a great revelation. Another one that's becoming increasingly to the forefront of people's mind is all around health and safety. And that applies during construction, and also once the data centres built. And there's two particular types of regulation that I think quite interesting and worth mentioning, certainly in the UK context is what I know about as a sort of UK construction lawyer. So the first one is to do with something called the CDM regulations. And that's all about making sure that when the datacenter is being built, there aren't accidents, because the construction industry has got a bit of a unfortunate record of accidents on the building site. And it's gotten much better recently, largely because of some new regulations. The other ones are to do with making sure the data centre is built, it is built in a safe way. So once it's operating it, it runs really safely. And that's all to do with something called Building Regulations. Now some of the listeners will remember in the UK, the dreadful Grenfell tower fire tragedy. And they might be thinking, Well, why does that relate to data centres? Well, actually, it does. Because out of that tragedy came a whole load of new law, principally summit called the Building Safety Act. And certain aspects of that do apply to data centres. One of the main ones to watch out for if you're a data centre developer, is that you now have to appoint somebody called a principal designer. And that person's role is to make sure that the design of the datacenter complies with building regulations. And it's it's a sort of mandatory requirement, you have to hire that person. So that gives you a flavour of some of it quite detailed and quite onerous, actually, health and safety rules that apply. And then the third one, just to mention, which again, is the kind of construction specific thing is to do with anti bribery and corruption, anti modern slavery, again, the construction industry hasn't always had a great track record around that, but it's getting so much better. And there's a lot of law around that which most data centre operators will build into their construction contracts. Because obviously, you don't want to have any kind of reputation issues during construction with a contractor who might not be doing things in the right way. So there's just a few examples with a bit of a UK focus split those themes do apply think wherever you're building around the world. So

Nick Layzel:

at the design phase, Marianne, there's there's a lot of work to do, considering the regulations. But the back end of that, I guess, or the output from that is things are done better things are improving. So is there a balance to be struck between coping with the amount of regulation and then the benefits? So I guess with health and safety, you can't really be compromised? Or, you know, anti modern slavery, there's no compromise on those kinds of things. It's interesting to see how they're balanced during that design phase. Yeah,

Marianne Toghill:

yeah, I would, I would say with those kinds of regulations that I was just mentioning, so health and safety or anti bribery and corruption or modern slavery, that's generally something which the construction industry just gets on board with, and, and does. And it's the kind of thing that reputable contractors and Datacenter developers have been doing anyway. So it's really only going to be a surprise to perhaps new entrants into the market or the or the less reputable. And so it doesn't tend to be controversial. But it is something that data centre occupies and developers are interested to see in their documents. They want to tick it off and know it's all properly covered. Okay, thanks.

Nick Layzel:

Thanks. And Sarah, I'm particularly what do you think these developments in regulation? Obviously, some have been around for some time, but further developments in regulation? mean for Telehouse? It's interesting,

Sarah Draper:

isn't it? So we're obviously refurbishing Telehouse South at the moment, I think a lot of our listeners will know about that. And that, you know, that's an old building that we're bringing up to new standards. And so the sort of regulations that Marianne has been referring to are well understood as, as I think she alluded to. But interestingly, we're hitting a whole raft of new ones that are more focused on sort of green credentials and targets that are expected to be met in terms of energy efficiency, and there's definitely a consideration in the designs of buildings now around, okay, well, what's this building going to be for? What we're going to try and house in it? And how are we then going to meet all of the different myriad of regulations that are coming over the over the cliff, and you can throw as many acronyms as you like at this, because you've got the EED, you've got CSRD. There's lots and they've all got implications for the design of data centres, the efficiency of those data centres, how they've got to operate. And that's before you think about considerations about your construction and sort of things like bream, etc, in terms of the standards of excellence that are expected now.

Nick Layzel:

And Marianne, where may the customer fit in all this? We've talked about the design and the development and obviously AI, driving the moment the increased use of power, but from the customer's perspective, are they part of this journey into more regulated kind of built environments? The impact on the customer? Is that appropriate in the design phase? or are interested the building's operating and constructed in the correct way? I should say, Yeah, I

Marianne Toghill:

think the focus on the customer is is the main thing, actually. And that doesn't just apply to data centres. It's any sector where you're building the thing. What I'm seeing is that customers are really interested in how green will the building base, if it's a data centre, they only really want to occupy a data centre, which has absolutely exemplary green credentials. And that's often driving data centre operators and developers, not just to build in accordance with whatever the law is around being green, but going further, actually, and doing more than strictly necessary in terms of complying with the law to meet what the customer wants. So I think the customer is is really at the centre of this.

Nick Layzel:

It's very interesting, obviously, Telehouse operates on data centres that have been built for for many, many years, that from the customer, the requirement, or the understanding of Telehouse's approach to sustainability is very near the top of their list in in the ask that they have. So I can understand your comments there. It's not just about when the customer is looking to select a new data centre or a new data centres built it's also around the environment that they currently occupy. Besides the need to be more sustainable, I guess we could say that in reducing emissions, other initiatives around procurement and those kinds of things, as anything else era driven the revision of increased regulation in this space,

Sarah Draper:

I think. So I think there's definitely a move towards more transparency, both in terms of the targets that we're trying to meet or aspiring to meet, but equally in terms of what our customers want to tell their customers and their regulators. So that drive for transparency has definitely become a drive for more data, and lots of lots of audits etc, that we certainly see. I know the other piece, as well as to drive resilience. So another challenge that we've seen from our customers is around, you know, if we're a critical supplier to them, what does that mean in terms of resilience. So that's another driver for regulation. And some of the regulators are putting regulations in to enable their regulated entities to be able to show that they have critical suppliers and resilience. So that does drive activity as well. And I don't think that you can untangle that desire for transparency and resilience from the myriad of regulations that we have. And going back to the sort of sustainability regulations. We see certainly within our sector, people signing up to things like the datacenter, Climate Neutral Pact, for example, which has metrics in it that the data centre operators and through Europe and wider have signed up to which is voluntary, almost, but driven very much by requirements of customers and requirements of the sector, and expectations for us to be, you know, as green as possible. And

Nick Layzel:

those regulations apply also to or specifically more to certain types of customer in certain business areas. For example, finance, or, yeah,

Sarah Draper:

I mean, hyperscale. Yeah, absolutely. I mean, certain of our customers are more highly regulated than others, the financial services sector is an obvious an obvious one, but not the only one. So yes, there's definitely a myriad of regulations that we have to navigate as an operator, both in relation to ourselves, but also in relation to ensuring that we can meet as many requirements as our customers have of us because of their regulations.

Nick Layzel:

And Marianne, the demands for more data Sara touched on there, more data is required to support reporting against regulations, or to demonstrate the customer's compliance with sustainability requirements. Is this incorporated at the design phase, this kind of thing?

Marianne Toghill:

Yeah, it is, isn't it? Yeah. So you'll see now in construction contracts, clauses, which obliged the contractor and the professional to the engineers, and so forth, to regularly report on this kind of thing. So that targets can be met. And you may even see KPIs around that reporting, perhaps on a monthly basis. So yeah, we're seeing that more and more now in construction contracts, that emphasis on information and reporting as a sort of contractual requirement.

Nick Layzel:

Maybe Sarah, could could you share with your view on how AI is impacting the data centre industry? Generally?

Sarah Draper:

Yeah, of course, I mean, in a number of ways, I suppose. I mean, AI in of itself requires huge amounts of compute power. So it's a massive drain on the energy resources, which is interesting, given where we are with sustainability and ESG, and our commitments around, you know, carbon emissions. I think the other the other challenge, certainly for data centre operators is the way it's called, as I understand it from engineers, is different to the way that perhaps you would call the more traditional servers and racks that you'd have in a datacenter. And that has implications for planning. So it's not just the sort of obvious ESG implications. There's also implications in the design of buildings, how they're built floor loading, for example. And therefore, you've got to think about if you're on a 30 year cycle to, you know, put a building together, what does it actually look like from the design point of view, the planning point of view your requirements in terms of your sustainability issues for the building itself, for loading, etc, etc. So lots of lots of implications, I

Nick Layzel:

think, do you think, Marianne that the growth of AI is going to have a significant impact on data centre construction itself? Sarah touched on the demands for for power. And actually, anecdotally, I heard about a developer of some AI, CPU infrastructure, now looking optical technology, which may reduce the amount of power required, but just at the moment, I think we're in from what we see as Telehouse and what our customers and our prospects are saying to us is that the demand for power and obviously the associated kind of cooling technology around that is just going north at the moment. So any any thoughts on how from a construction perspective, we accommodate these, you know, this rapid increase in power requirement?

Marianne Toghill:

Yeah, so I agree with you that at the moment, everyone's assuming that AI is going to be very power hungry, water hungry, cooling, hungry. And I'm an optimistic person. So I'm sure that sooner or later, there'll be some sort of clever engineer somewhere, who comes up with a way of stopping that getting worse and worse, but the moment everyone's assuming that's the case, so people are really thinking about how the design of data centres will change to accommodate that it's bound to change, they may have to get bigger, the location may have to be different. So I think it's something which is really exercising a lot of engineers and contractors at the moment thinking about how to do that.

Nick Layzel:

Marianne's points on the impact of AI and the construction from a legal and risk management perspective. Are there any particular challenges that AI calls around the around the construction on how data centre operators should prepare?

Sarah Draper:

So that's a very wide question. And, yeah, AI has implications both in relation to how our customers use it, how we, as a business, provide for it. So that's your calling that should design that your floor loading, etc, but also how we govern it and how we use it internally, and what we use it for. So things like IOT devices to measure cooling to give us analytics around preventative maintenance, for example. They're all great use cases for AI within the operations. But there are, of course, implications and regulatory implications and risk areas within it. Anybody that's read articles about AI will know about bias, about the data issues, you know, how these compute models or the large language models in particular, have been put together, where that data comes from, who owns it, there's cases beginning to come up now, certainly in the states around AI and IP implications, for example, that's intellectual property and the ownership of that. So I think the risk management and the clarity of where it can be used and how it can be used, and the models that are appropriate to use are going to be very important. And a lot of that comes down to understanding what they actually are. So I think the implications are wide, ranging from numerous different areas, depending on which lens you're looking at it through.

Nick Layzel:

And it feels like we're at the start of that maybe apps we're not, we're not kind of in a mature place. So things are going to develop. And I guess that needs a continual review and continual challenge and assessment of these kinds of risks and how we implement and use AI generally, how AI works in the data centre.

Sarah Draper:

I couldn't agree more. We are very much at the beginning of that journey. And I think as businesses become more aware of AI, the power of AI and the risks as well as the benefits, the opportunities, it will become much clearer for organisations in terms of how we can use it effectively, efficiently and importantly, safely.

Nick Layzel:

Do you feel Marianne that AI itself is directly affecting the way that the contracts are formed with operators and developers? Now? Are we starting to see some of the things that Sara is talking about being implemented in in contracts?

Marianne Toghill:

Yes, yeah, I do. Say whenever you're building a datacenter, you almost have to have a crystal ball, you have to predict what's coming. And you have to work out when you're designing the data centre, is this going to cope with how technology will will change during its life, that's actually quite hard. And AI is made even harder, because it's moving so fast, no one quite knows where it's going to end up. So I think it is a challenge for designers to think ahead and plan and work out how we can construct a data centre in a way that's very flexible. So it may be that you see more things like modular construction coming in, where the data centre can be reconfigured more easily to cope with changes in AI that perhaps we haven't we can't even imagine right now, that could come very quickly. So that's one way kind of more flexible construction. And I think another way that AI is impacting on construction, would be in the actual building contracts. So what I'm starting to see there is this tension between the need to cope with power and water demands of AI, and the need for the construction to be done in a way that's very green. And the two things don't always mesh. So what datacenter developers are starting to do is be a bit more contractual in terms of clauses in the building contract, which will say to the contractor, you have to meet this particular bream target or wherever it might be. And if you do, we maybe will hold back some money like a retention until that's been actually achieved, which is something I've only really seen happened in the last year or so. Which is quite a big change for the for the construction markets. That's just a couple of ways that it's changing.

Nick Layzel:

Sarah, from, from your perspective, you talked about a lot of the regulation outside of AI and maybe the environmental sustainability, these kinds of things, as they also develop rapidly. How do they tend to businesses accommodate what may be going in the future? I know that your team is horizon scanning very deeply to look at what might be coming down the line, but how as a business do we do we prepare for these for these changes?

Sarah Draper:

That's a very good question. We are very much in the middle of an increasingly complex regulatory environment. You have to continually learn you have to continually and we can use a phrase horizon scan, but it's it's keeping connected with all of your subject matter experts, all of your external advisors, ensuring that you're aligned with what the industry is doing. Using groups like tech UK, for example, to ensure that you know what's coming down the pipe, ensuring that you are connected to all of the different elements of whether it's the government, whether it's external advisors, etc. It's just taking inputs of amounts of data and adapting, learning and then aligning your internal processes to whatever's coming.

Nick Layzel:

And also supply chain, I guess, is a factor in that aligning with the supply chain as a data centre operator or developer or construction company, you can't be kind of single track minded there, you need to take everybody on the journey with you or be a part of that journey as a whole supply chain.

Sarah Draper:

I couldn't agree more and increasingly, Enterprise Risk Management, which is where you get your inputs from all sorts of external third parties is absolutely at the forefront of how you manage these risks. So whether it's inputs from your customers and their demands, wider stakeholders, your supply chain, etc, you need to be aware of all of these and take it into your risk management strategies as a, as a company as an organisation.

Nick Layzel:

Thank you. As we wrap up, Marianne and Sarah, could you share one key takeaway for our listeners regarding the future of the data centre development, in light of all of these evolving rules and technologies, maybe Marianne?

Marianne Toghill:

I suppose emphasising collaboration. So if everyone wants to achieve green credentials, no one can do it on their own. All the different stakeholders have to work together, whether it's datacenter, developers, customers, contractors, and so forth, and that we'll be able to achieve achieve the goal.

Nick Layzel:

Thanks, Marianne. And Sarah,

Sarah Draper:

Difficult to put into one recommendation, but I might cheat slightly and talk about enterprise risk management. So all of this different evolving implications across regulations across the change in emphasis, we need to understand what that means both for ourselves as an operator for the industry, for our customers, for our suppliers. And it's taking those inputs from wherever you can, you can get them really, and continually learning and continually adapting. And that's I think the key.

Nick Layzel:

We'll probably call it a day there, but good to reflect on how regulation is steering and helping. I think Marianne alluded to the fact that that regulation is has made things better the challenge of emerging technologies and keeping up with the emerging technologies in order to maintain the progress towards a better environment for everybody. The infrastructure itself is really important. So thanks very much for your insight, Marianne and Sarah, thank you. Thank you. Thanks, everyone, for listening to this episode of The Making Connections podcast, and I hope you'll join us for the next episode soon.