Rapid data centre expansion is expected to face increasingly stringent power and water-related constraints as governments respond to rising electricity demand, drought exposure and pressure on local water resources, according to BMI.
In its latest ESG Country Weekly Digest dated Sept 14, BMI said energy and water use by data centres are already influencing government policy, project design and operating decisions across major markets.
The research firm said several jurisdictions have introduced restrictions on new data centre developments, particularly around grid capacity. Ireland, for example, requires new projects to provide generation or storage capacity matching their maximum grid demand, while authorities in parts of the Netherlands have restricted large-scale projects and some areas in Texas have suspended new connections.
BMI expects Asian governments to move in a similar direction as markets such as Malaysia and India seek some of the fastest growth in data centre capacity, albeit from a lower base than the United States and other mature markets.
Water Stress Emerging As Bigger Constraint
BMI said water availability will become an increasingly important factor in where and how data centres are built as cooling requirements grow while water scarcity worsens.
Its analysis, combining new data centre project data with geospatial drought indicators, found that many data centre clusters are located in areas with higher-than-average drought exposure compared with national levels.
The trend is particularly evident in markets including the US, UK and Japan, although some highly water-stressed countries such as Saudi Arabia and other Gulf states have been able to offset scarcity risks through desalination and water-recycling infrastructure.
BMI expects operators to increasingly invest in recycled-water systems and low-water cooling technologies to reduce dependence on potable water.
It cited Amazon and Veolia’s April 2026 announcement of a reclaimed-water cooling facility in Mississippi, which could avoid more than 83 million gallons of potable water use annually.
Greater Water-Use Reporting Expected
The research firm also expects tighter reporting requirements as regulators seek greater transparency over data centre water consumption.
The European Union’s revised Energy Efficiency Directive requires reporting of power- and water-usage effectiveness metrics, while some US states are moving towards similar measures.
Canada has also introduced national principles requiring data centre projects to minimise and report water use and to fund attributable generation, transmission and substation costs.
BMI said water regulations are likely to tighten further, although they may remain less restrictive than rules governing electricity use.
Malaysia Climate Policy Shifts Towards Adaptation
Separately, BMI noted that Malaysia’s proposed National Climate Change Bill is expected to cover climate adaptation as well as mitigation.
The Natural Resources and Environmental Sustainability Ministry said on Sept 10 that the bill would include adaptation measures, expanding beyond earlier emphasis on emissions reduction, energy efficiency, renewable energy investment, carbon pricing and mandatory emissions reporting.
BMI said the broader adaptation focus raises the prospect that the proposed Climate Change Fund could allocate more funding to measures outlined in Malaysia’s National Adaptation Plan, including responses to increasingly severe weather, flooding, sea-level rise and coastal erosion.
The report said the move reflects a wider global shift towards climate adaptation as the economic costs of drought, wildfires and other physical climate risks increase.
BMI warned that as data centre investment continues to expand, particularly in fast-growing Asian markets, access to power and water is likely to become a more decisive factor in project approvals, location choices and long-term operating costs.
