Water-related disclosures – once sidelined by companies and investors as carbon emissions took centrestage – are quickly emerging as a critical area of reporting for companies amid the rapid adoption of artificial intelligence (AI).
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While there are high hopes that AI can offer new solutions to age-old problems, its massive computational power is driving the expansion of data centres, which in turn is expected to rack up a significant water footprint, particularly to meet growing cooling needs.
Against the backdrop of climate change exacerbating flood risks and water pollution, environmental reporting non-profit CDP saw demand for water-related disclosures spiking by 122 per cent in 2023 compared to the year before, with tech giants like Apple, Amazon and LG among those that financial institutions requested data from.
Aviation companies like Qantas Airways, Ryanair, Jetblue and easyJet were also asked by the same group of financial institutions – representing over US$21 trillion in assets – to disclose data on water contamination from jet fuel leakage and the sector’s extensive use of de-icing fluids.
In Asia, there has been growing awareness of the need to build water-related disclosures into carbon reporting frameworks. As co-chair of the Global Commission on the Economics of Water, Singapore president Tharman Shanmugaratnam, for example, has been actively advocating for water disclosures that include the impact of a company’s operations on water ecosystems to be built into existing carbon reporting rules. In June last year, the republic also launched Southeast Asia’s first water climate adaptation platform.
In Malaysia, where the data centre sector has seen robust growth in the past few years, with a pipeline supported by investments from tech giants, like Nvidia, Microsoft, Google’s parent company Alphabet and TikTok’s owner Bytedance of – according to industry estimates – at least 1.2 gigawatts (GW) planned capacity, regulators are starting to look into stricter rules for the water use of data centres.
The country has taken some initial steps in implementing water-related disclosure requirements for listed companies in specific sectors, including construction, consumer products and services, energy, healthcare, industrial products and services, plantation, property, transportation and logistics, as well as utilities. These companies are required to report their total volume of wastewater discharge.
In 2023, national bourse Bursa Malaysia also mandated main market listed issuers to disclose on “common sustainability matters”, which include water consumption metrics which ACE market-listed issuers need to follow by 2025.
However, where mandatory water disclosure requirements do exist in Southeast Asia, including in Malaysia, regulations only cover water usage and pollution within a company’s direct operations, wrote a policy note published by CDP last year.
This fails to capture the full extent of water-related risks, noted CDP, including corporate governance mechanisms to manage these risks, their potential financial value and how value chain engagement.
Regulatory efforts, which are still in their infancy in the region, “remain patchy and incomplete”, CDP stated.
An overview of water-related metrics included in mandatory and voluntary frameworks across Southeast Asia. Source: CDP
Defining water-related risks
Water-related risks can be largely classified into three categories: too little water, too much water and polluted water.
Similar to other nature-related risks – a concept which the Taskforce for Nature-related Financial Disclosures (TNFD) framework has helped popularised – water impacts are site-specific and are interconnected with other environmental impacts, like climate change and land use change.
These risks can be broadly categorised into physical risks – such as extreme water-related weather events, water stress and contamination of water bodies – as well as transition risks, which arise from the introduction of regulations on effluents, shifts in market preferences, stakeholders’ perceptions of a firm’s impact on water resources and the impact of new technologies.
Key water-related characteristics for businesses and examples of links between water and other environmental topics. Source: Climate Disclosure Standards Board
Current state of water risk disclosures
As of 2023, 156 Southeast Asian companies have responded to CDP’s water security questionnaire, with the bulk coming from Indonesia. The disclosure platform noted that apart from the manufacturing industry, where nearly half of the sector’s companies have made water-related disclosures, data continues to be lacking in other high-impact industries like food, beverage and agriculture, materials, infrastructure and fossil fuels.
Malaysia saw the second-largest number of water-related disclosures in the region, with palm oil giant Sime Darby Plantation being one of the 45 companies that has disclosed to CDP. This represents a 27 per cent response rate among requested companies, which is slightly above the average rate in the region.
Ahead of International Sustainability Standards Board (ISSB)-aligned reporting rules – which cover water-related disclosures – kicking in this year for the largest listed firms, over half of Malaysia’s issuers have started providing water withdrawal data. However, the scope and quality of reporting for corporations saw a significant decline outside the largest 50 companies in the sample.
The data centre industry is one to watch in the infrastructure space, with Malaysia’s water regulator warning in February that those eyeing to build data centres in the country – which has ambitions to become Asia’s data centre hub – must tap alternative water sources to ease pressure on the public water supply.
Water infrastructure in the peninsula’s south can only meet less than 18 per cent of the water consumption needs of the 101 data centres operating across Selangor, Negeri Sembilan and Johor, according to the data from the country’s National Water Services Commission.
Getting started on reporting
Here are some practical steps businesses can take to enhance their water-related risk reporting, based on global best practices outlined by the Climate Disclosures Standards Board, which has since been consolidated under the ISSB:
Malaysia-listed firms that have set water-related targets
Sime Darby Plantation
In 2019, the palm oil company committed to reducing water intensity by six per cent annually over a five-year period, against a baseline of 1.4m³ per tonne of fresh fruit bunches processed. While it was not publicly reported, Sime Darby disclosed in its 2023 CDP questionnaire that the target has been reached.
It has publicly communicated a pledge to achieve a 30 per cent reduction in operational water intensity by 2030.
Heineken Malaysia
In 2022, the brewer reported that it improved its water efficiency by 20 per cent compared to its 2014 baseline. It aims to reduce water consumption by a further 25 per cent to 2.6 hectolitres of water per hectolitre of product by 2030.
This will be done through upgrading machinery, recovering and reusing treated wastewater for non-potable use, and reducing wastage and leakage.
Sunway
The conglomerate has pledged to reduce overall water intensity by 10 per cent by 2030 against a 2015 baseline. According to its 2023 sustainability scorecard, the water intensity for its managed assets have increased by 16 per cent from the baseline year.
1. Apply materiality
To start with, a company should identify its material water-related risks and opportunities by adopting a basin-scale approach, which tackles water as a shared resource, considering its different business activities as well as its operations along the value chain.
If water is not deemed material, the business will need to explain how it came to this conclusion.
2. Provide contextualised water-related information and clarify methods
The disclosures should focus on reporting activities that are likely to impact the availability and quality of water for the specific organisation. The company should also outline how those impacts will affect its business operations and strategy.
Priority areas affected by critical levels of water-related risks should be highlighted by the company. The assessment methods used, alongside any assumptions, to identify these sites must also be clearly defined.
Water usage should ideally be broken down by type and be measured in megalitres for consistency.
3. Set measurable targets
Based on these identified hotspot areas and risks, time-bound targets and metrics should be established to reduce water withdrawal, improve water efficiency and recycle wastewater.
The disclosures should also detail how the corporation’s water policies and strategies will be delivered against set baselines, and the resources needed to do so.
Where disclosure gaps remain, the firm must include measurable objectives and a timeline to address them.
4. Align with international standards
Listed companies can reference Bursa Malaysia’s ISSB-aligned sustainability reporting framework, which includes mandatory water-related disclosures for specific sectors.
Those that are already reporting against globally recognised frameworks, such as the Global Reporting Initiative’s standards or the CDP’s water security questionnaire, can also repurpose existing disclosures to meet domestic requirements.
