The accelerating global demand for data centres, fuelled in large part by artificial intelligence and cloud computing, is sharpening focus on the sector’s material exposure to water risks.
A new analysis from Ceres highlights how water use, both direct and through energy generation, could create financial, operational and reputational risks that investors must not underestimate.
Investments in data centres have increased from $11bn (€9.4bn) in 2020 to $50bn in 2024, according to a report from Boston Consulting Group. As capital flows increase, so does the concerns about the energy consumption, security and sustainability. Several studies estimate enormous increases, some up to 1000%, in power consumption by data centres in the next five years.
At the heart of the energy concerns is water consumption. The Ceres study, Drained by Data: The Cumulative Impact of Data Centres on Regional Water Stress, uses Phoenix, Arizona, as a case study, illustrating the scale of the challenge in a region where water scarcity is already acute. More broadly, 32% of US data centres are located in areas experiencing high or extremely high-water stress, a trend mirrored in other global data centre hubs.
Cooling servers consumes large volumes of water, but Ceres’ analysis underscores that the indirect water footprint, embedded in the electricity needed to run vast data halls, is significantly larger.
Kirsten James, senior programme director of water at Ceres and co-author of the report, said: “To protect their business, it’s critical for companies and investors to address the full suite of water risks stemming from existing and planned data centres, particularly in areas of high-water stress.”
While most operators disclose water use at the facility level, Ceres points out that few incorporate wider water impacts tied to their energy demands.
For institutional investors, the implications are clear. Water scarcity can translate directly into higher costs, supply disruptions and licence-to-operate risks.
Furthermore, concentrated clusters of data centres risk amplifying basin-level stress, creating systemic concerns across regions and industries.
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