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Global data companies ill-prepared to mitigate water risks

Not a single Asian company performed well on all the indicators, according to Morningstar research.
Purification water fountain in Kyoto, Japan with liquid running from spout faucet

No companies in Asia that operate data centres are performing well in terms of water use risks and resource management, according to research by Morningstar.

Morningstar analysed the water risk and water resource use management of 122 companies globally that operate data centres including Alibaba, Tencent and Baidu for the report ESG Risks Affecting Data Centers: Why Water Resource Use Matters to Investors.

Not a single Asian company performed well on all the indicators, comprising ‘water management programme’, ‘water risk management’, ‘physical climate risk management’, ‘water intensity’ and ‘water intensity trend’.

“Increased extreme weather events driven by climate change are impacting China and the Asia-Pacific region, and these include both chronic and acute water-related physical risks,” said Erin Johnson, ESG research analyst at Morningstar.

“With these risks being more intensive, frequent, and unpredictable, it requires increased water risk assessments and awareness of the issue.”

Data centres throughout the world are located in water-stressed regions prone to droughts, water shortages and water restrictions, which make companies liable to operational disruptions.

However, while a large number of companies disclosed information on their physical climate risk management, largely due to the prominence of climate-related reporting frameworks such as the Task Force on Climate-related Financial Disclosures and growing regulatory scrutiny of companies’ emissions, the vast majority were found lacking regarding their water risk management disclosure.

The results showed that only 16% of the companies globally that were analysed disclosed elements of a water risk management programme.

In addition, nearly half of the companies have a formal water management programme, although only 5% of those companies were classified as having a strong programme.

Overall, Morningstar found that water disclosure remained poor for Chinese companies across all industries as there is very little evidence of systematic water risk consideration such as the integration of water scarcity into regular risk assessments and business strategy.

However, Morningstar noted that as China’s economic growth is closely related to its water resources, it is high on the political agenda so it expects more stringent regulations to be introduced going forward.

This story first appeared on our sister publication, ESG Clarity.

Part of the Mark Allen Group.