A Big Risk to Tech and Data Centers You Might Not Know About


Without water, there is no life. But more than that, water permeates many of our daily activities. Every time we open a browser on our smartphones, or click on our online shopping basket, or stream a video, water has enabled the technology. Water is needed to mine the precious metals, manufacture the products, and generate the electricity. 

Data centers sit at the heart of many of the technologies and products we rely on. And they guzzle water. That puts all kinds of companies at risk from shrinking water supplies.

“Data centers are very water intensive and can require billions of liters of water each year, and can often be located in water-stressed regions,” says Erin Johnson, ESG research analyst at Morningstar Sustainalytics and co-author of the blog post, ESG Risks Affecting Data Centers, which analyzed water resource use for 122 companies that operate data centers.

This “can present operational, reputational risks to companies especially as the issue of water scarcity intensifies, with the progression of climate change, and there is more competition for water among local stakeholders,” she adds.

Data centers relay on water for cooling and, indirectly, through the generation of electricity.

James Rees, a water consultant at Noverram, a firm focused on climate technology consulting, says global technology companies that own or manage large data centers provide data processing, hosting, and e-business services. These centers require significant infrastructure and use a lot of water for cooling. 

“These companies are investing in innovative ideas to reduce the volume of drinking water traditionally used for cooling, such as immersion or air-cooling systems, distributed processing, recirculation, and recycling water. But regardless, they do use a lot of water, and often it is taken from high-risk stressed basins,” says Rees.

Water stress and water scarcity are global issues that are becoming increasingly urgent. In the U.S., the federal government recently announced new emergency water cuts for Arizona, Nevada, and Mexico as the nation’s two largest reservoirs—Lake Mead and Lake Powell—declined to perilously low levels.

The West has been gripped by a continuing “megadrought” that is the region’s driest stretch in more than 1,200 years. Meanwhile, Europe is also parched. The Rhine, Europe’s largest and most important river, is becoming impassable at a key waypoint. And in China, a brutal drought in the Sichuan province has threatened the supply of hydroelectric power.

Morningstar Sustainalytics says companies that rely on the consistent availability of large volumes of water are exposed to water risks, including shortages that could hamper their ability to continue their operations and increase costs. “Companies that use water-intensive data centers are exposed to such risks,” the authors write.

Data centers play a critical role for many technology and telecommunications companies and for their supporting servers, digital storage equipment, and network infrastructure for data processing and storage. But Morningstar Sustainalytics found that just 16% of the 122 companies that it analyzed disclosed elements of a water risk program.

Data centers are designed and built to withstand bad weather, but extreme weather events, including freezing temperatures, droughts, and wildfires, can trigger problems. According to a recent Uptime Intelligence survey, about 45% of U.S. data centers have experienced an extreme weather event that threatened their ability to operate.

(ticker: MSFT) is the only company that received top scores for its water risk management and water management program, Morningstar Sustainalytics said, noting that its success can be attributed to its investment in becoming water positive by 2030. To do that, the company has said it is tackling water consumption in two ways: reducing its water use intensity—or the water it uses per megawatt of energy used for our operations—and replenishing water in the water-stressed regions in which it operates. 

“Companies like Microsoft can drive trends, even within their industries, regarding water management, not just the fact that water matters, but also the fact that water isn’t just a risk—it’s a shared resource,” says Kata Molnar, water thematic expert at Morningstar Sustainalytics and co-author of the blog post. “Companies like Microsoft seem to be at the more innovative edge of the trend.”

Write to Lauren Foster at lauren.foster@barrons.com

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