Senior bankers push back on climate concerns over AI data centre boom

Key points

• Bank sustainability heads have dismissed claims that the AI data centre boom is driving unsustainable rises in energy and water use, arguing that the most efficient facilities compare favourably with other industries.

• Standard Chartered and HSBC executives said advances in chips and computing could reduce cooling demands and help build smarter grids, while warning that AI may be essential to tackling climate change.

• Analysts cautioned that data-centre growth could deepen fossil-fuel dependence in Southeast Asia, where capacity is expected to triple and LNG demand could rise by 16% over the next decade.

• Critics said efficiency gains may be cancelled out by rising demand, with water risks extending beyond data centres to power plants, grids and vulnerable local communities.

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Bank sustainability heads have downplayed concerns that AI data centres are fuelling a surge in energy and water use.

Speaking at a conference in Hong Kong this month, Marisa Drew, chief sustainability officer at Standard Chartered, said concerns about data centres’ climate impact were being driven by “misinformation”, as other senior bankers highlighted AI’s potential to help cut emissions.

“There’s a lot of misinformation right now about data centres… I call it the new favourite child for the media to jump on, and it’s only a negative story,” said Drew.

Drew said the energy intensity of the most efficient data centres was lower than that of many other industries.

“Energy usage of the best-in-class data centres is a fraction of any other industry from an intensity point of view, including traditional warehouse spaces,” she said, adding that they also use closed-loop systems, which limit their use of fresh water.

Thanks to a “successive leapfrog” in technological advances, including Nvidia’s latest AI chips, which can operate at temperatures of up to 45°C, Drew said she was optimistic that energy consumption for cooling data centres will decline further still.

Natalie Blyth, global head of sustainable finance & transition at HSBC, claimed AI was a necessary tool for combating climate change. “You can’t have smart grids and you can’t have a sustainable outcome without computing power and AI,” she said.

Both Drew and Blyth were responding to a question about how financiers can prevent stranded asset risks from fossil fuel-powered data centres. 

While data centres currently consume roughly 1.5% of the world’s electricity, their geographic concentration in certain places could put pressure on local grids in regions that remain heavily dependent on fossil fuels, such as Southeast Asia.

Southeast Asia’s data centre pipeline is set to more than triple to 9.4 gigawatts (GW) by 2035, according to research group Wood Mackenzie, while electricity demand from the facilities is projected to triple to 57 terawatt-hours (TWh).

“Combined-cycle gas turbines are currently the most viable technology capable of meeting data centres’ 24/7 reliability requirements at scale, as grid-scale battery storage remains commercially immature across the region through the mid-2030s,” wrote its analysts.

Data centre expansion could push annual liquefied natural gas (LNG) demand in the region by 16% over the next decade, they added.

‘We live in the here and now’

DBS’s chief sustainability officer, Kelvin Wong, struck a more cautious note, arguing that looking at both water and power efficiency metrics is “absolutely critical”, especially in countries that are water-stressed and have limited access to clean energy.

“Yes, there’s technology that is obviously accelerating – whether they are commercialised yet is a separate point. But… we live in the here and now,” said Wong.

In July, DBS was one of ten banks that helped Australian data centre company AirTrunk secure US$2.33bn for its expansion in Johor, Malaysia, in the region’s largest green loan for a data centre to date.

Wong said that water usage was one of the project’s key performance indicators, highlighting the additional pressure on local supplies in Johor. The Malaysian state has postponed water-cooled projects until new supplies arrive in mid-2027. 

Since January, all new data centres in Johor have to comply with a water usage effectiveness (WUE) threshold of 1.8m³/MWh, matching Singapore’s standard. While AirTrunk’s new data centre facility is “designed to achieve industry-leading energy and water efficiency”, it has not publicly specified the exact WUE it is targeting.

Lurking water risks

Jonatan Pinkse, director of King’s College London’s Centre for Sustainable Business, told Green Central Banking that he is “not as optimistic as the bankers.”

“Data centres may be more energy- and water-efficient, but that leads to the classic rebound effect,” said Pinkse, describing the phenomenon where efficiency gains from technological improvements are offset by overall increase in resource consumption.

“This is not necessarily felt by the bankers, but it is felt by society,” he said.

Although some data centre operators have committed to becoming  “water positive” by replenishing more water than they consume, Pinkse questioned whether they adequately address local shortages. 

“Water is a localised resource, so there is a need to focus on more local impacts of data centres,” he said. “We can’t just look at averages because there are huge inequalities for how they will impact local communities.”

Additionally, there are lurking water risks in the power and grid assets that data centres depend on, flagged Debra Tan, head and director of China Water Risk. 

On-site water recycling facilities can improve water efficiency, but in the long-term they also consume more power, she said.

“We often forget that power – coal, gas, nuclear, concentrated solar – all require water for cooling, unless they are air cooled,” said Tan. Countries that import nearly all their coal, oil and gas by sea, like Japan and South Korea, face additional exposure to faster sea-level rise, as the world’s largest trading ports could be hit as sea levels rise to  1 metre by as early as 2070.

“I’m probably more worried about water risks impacting the grid or the power suppliers, rather than the data centre itself which is likely to be already fireproofed and waterproofed,” she said. “In fact, water risks can be found along the entire energy supply chain… So even if your data centres are not coastal, you will still be exposed to fast-rising seas.”

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