Equinix, Inc. (EQIX) Earnings Call Transcript & Summary

I think transparency is extremely important. And I'll say that I've really done a 180 on this, where I view that by being transparent on your metrics, even if it doesn't have the most amazing story to tell, being transparent on your metrics helps drive the strategy. You can't have a water strategy if you don't know what your water metrics are. So you can't have renewable stories if you haven't built that into how the operation team is building out renewables. So I think I'm a big proponent of continuing to increase disclosure around metrics. I think also it's important that data centers, as a sector, control the messaging. We do not want to fall into the position where we look like we're just large consumers of power and local resources. We want to be at the forefront of thinking about how do we run digital infrastructure sustainability. We want to promote that by shutting down enterprises, shutting on their own data centers and moving to more efficient third-party colocation, you actually save a tremendous amount of energy. And companies like ourselves and our peers, the larger ones are able to go into these more complex VPPAs to promote additionality on the renewable grid. And you're seeing us also be part of the industry groups. In Europe, in January of this year, we signed the EU climate-neutral data center pact. That was about 25 of us and our customers getting together and saying, we're going to create a self-regulatory framework around 5 factors, and that's going to set markers for how we'd like the industry to evolve. And then we're going to report back to Brussels around this framework. And it's putting in new standards like saying we committed in Europe to build PUE efficiencies of 1.3 to 1.4 on all new builds by 2025 and then get the whole sites up to those factors by 2030. It also includes looking at water. It includes looking at recycling and other areas as well. So I think it's important that we collaborate together overall to really make the data center look like leaders in this space.

Yes. We -- I think we agree. We kind of point out PUE, WUE, renewables mix, carbon intensity, not every company can give granularity or is willing to. Even reporting index metrics over time I think could be helpful so that companies that may not want to give the actual number can at least give investors and other stakeholders kind of the benchmark as to how they're progressing relative to prior years. But the question I want to ask you next is with the rise of ESG targets, we are seeing an increase in sustainable finance products such as green bonds, which you mentioned. What has been your experience most recently and maybe more broadly in pursuing sustainability-linked financing?

Yes. This was a really exciting work -- effort to work off of. And you saw us go out with our first green bond in September of last year of EUR 1.35 billion, our first inaugural issuance. And we were very excited to have that out the door and get good reception. This week, we issued a EUR 1.1 billion debt deal that received a very strong reception. In fact, when I look at the allocation metrics, overall, on the 6-year tranche, for example, about 70% of allocations were to deep green investors. And across both tranches, it was about 60% plus. And there are several reasons why I really like the green bonds framework. One, it shows just a straight return for the sustainability report, meaning we were able to price the tighter credit spreads. Again, it's hard to gauge exactly, but I would say, for that latest issuance, there was a 10 to 15 basis point improvement because we went green. And that is significant on EUR 1 billion-plus issuance, which is very exciting. The second is going through the process of setting a green bond framework really pulls the overall team into the discussion of, okay, what do we actually want to commit to? Not what's best practices? But what do we want to set as a standard? How do we want to track against that? And how do we actually create an eligible green project portfolio? So I think it was a really good exercise. It took several months. So for anyone interested in this, work on your green finance framework way in advance of doing your first bond, because it takes several months of discussion. You really want to think hard around how do we really showcase the bar with like what actually fits into the portfolio. Once you have a setup, you can issue much faster. Our second bond that we just did, because we had the existing framework in place, because we've done all the prep work around it, we were able to go to market very quickly with it.

So back maybe -- a couple of questions ago, you talked about some of the metrics in the reporting frameworks. Specifically, how does Equinix measure and disclose ESG performance? Which reporting frameworks and standards do you utilize?

So the base of our corporate sustainability report is following the GRI standard, Global Reporting Initiative. And that's essentially half the report is that framework. Now we've been layering on additional ways to cut the data. For the first time, the 10-K that just came out, we also reported in the SaaS fee framework as well. And then also our customers have us report across a different -- variety of different surveys, whether it's CDP or EcoVadis or GRESB. So there's also other reports that where our team is working and filling out. But I would say GRI and SASB are kind of the 2 main, most widely adopted frameworks to work off of.

One, on the policy and regulatory front, with the new Biden administration, here in the U.S., there's been a lot of talk about the U.S.' commitment to place climate change at or near the top of the policy agenda, that's rather obvious from the headlines. Internationally, the policy and regulatory framework continues to evolve as well. Are there regulatory changes that you are anticipating this year as a result of the government policy that would affect your practices?

Yes. So we have a very strong public policy group that works directly with the government and tracks policy across the globe. Then we also engage at the -- in Europe, at the country manager level or at the regional president level on the policy side. And I do think that the advantage of running globally is you have whatever regions that furthers ahead helps drive overall policy decisions. I think our goal is to remain in front and as leaders on the sustainability side. I think it's exciting with kind of taking the friction out of what the prior administration was trying to do. And now we're certainly hoping the promotion of renewables and opening up of those markets. We're also very engaged with the REBA organization on shaping policy around there as well in the U.S. So we're excited about what's coming. We'll continue to track it very closely and continue just executing against what we had overall set out as our goals there.

A couple more environmental questions then, as it relates to kind of the medium to longer term. One of the challenges around realizing these plans towards a lower carbon future is balancing current business performance and results today with investing for the future and the costs around that may not be fully defined. How do you approach that challenge and transition more broadly?

I frankly feel lucky to be running a sustainability program for a data center company, because I feel we actually don't have to do like a hard right turn beyond how we're currently executing. We can layer in the sustainability work and messaging on top of the existing framework. Now there's actually opportunities to enhance in terms of innovation, to push harder on PUE and environmental certification. But those are, for the most part, aligned with what we would want to do as a business anyway. You also have financial incentives for some of these projects. I mean we've been doing energy efficiency projects for over 10 years now. And that's because there's a direct return on investment -- invested capital, where you say like, okay, I might replace my cooling unit faster than I normally would, but I use less power, so my cost, there's actually a return on those costs. I would say internally, we try to align as much as we can with the financial incentives and framing it that way as well as what the customers are asking for rather than just leading with, this is the right thing to do. We fundamentally believe that is, but the more we can kind of align with, yes, this is how the business performs, this is what our customers want, these are the actual returns off of it, things like the green bonds, so you show real credit tightening because of what we're able to do there, helps kind of drive some of these initiatives as well.

And one theme around the targets that we kind of mentioned before is companies setting ambitious kind of net-zero targets, governments or companies. And how specifically is Equinix approaching this push towards steady net-zero?

Yes. Absolutely. And I'll say the fundamental goal of the sustainability program is to drive real value and progress across Equinix. That is the heart of what we're trying to do. And because of that, we have a lot of work currently in process that we can roll up into a science-based and a climate-neutral target. So we think we can set actually quite a ambitious target out there based on the works that we are doing. Again, you have to amplify some of it. But a lot of what this program office is trying to do is recognize the work already being done and then turn it into a global target. We also really committed to climate neutrality in Europe by 2030. So I think that's the start of a commitment. And we are -- actually, we -- my team has been about 1 year now looking at science-based targets, looking where we need to be for climate neutrality. And we've done the analysis. We are running it up the chain. And that's something I would like to look at as a company of doing next. I don't quite have approval yet. But I think it's very important, and we hear it from across the board. I think there's a little bit less pressure on it right now, but I would expect particularly investors to start really focusing on this one in the next year or 2. And it does -- it really does drive a broader conversation. So I think the SBT target setting is a very, very good goal and exercise for companies to do.

So talk just a very short number of energy labs and this will kind of take us to the finish line here, but talking about diversity, inclusion, issues in inequality that have been in the spotlight in recent months, how has your organization been able to meet the moment and address challenges related to D&I and quality?

Yes. I'd say, we're building it off of the back of the culture. -- excuse me. We're building it off the back of how we set up our culture. What you're seeing us expand on is certain programs around areas like how do you attract, recruit and develop diverse talent. So moving from, yes, this inherently was what we were aiming for, to specifically partnering with organizations that represents -- that can help bring in underrepresented talent. So that's one area. The second is instrumentation. We're looking at being able to report on our diversity metrics, and we have a quarterly dashboard that's going out to the executives on how those metrics look like. And in fact, we've actually built out the team to over 15 people, who are working across the social effort. So that includes community engagement, it includes DIB and includes the other efforts, but it's a really great way to kind of shape your culture. The other is transparency. So we've reported general metrics, but you'll see us adding diversity metrics in our next corporate sustainability report. And again, those metrics are important because your -- it gives you the baseline to work off of and it helps kind of track your efforts. And then lastly, the effort -- there's been a big effort around rolling out what we call employee connection networks. And this is a way for employees to connect and engage both with themselves and across the organization. So we have groups varying from -- there's a Women's Leaders Network. There's BlackConnect. There's EquiGente, which is a Latin American-based connection to a wide variety of different groups. I think this was particularly important during the pandemic. As we lost what was really an in-person social community at Equinix, it helps us evolve just as a way to to stay in touch and to connect remotely as well. So that's been a big effort launching those ECNs over the last year or so.

Great. We are out of time, at the top of the hour. I really want to thank you for sharing your thoughts, covered quite a lot of ground and appreciate your participation.

Absolutely. Thank you for hosting me, Jon. And please reach out if you guys have any follow-ups, we're always very happy to share our work with our investors.

Thanks again.

Thanks, Jon.