Making datacentres sustainable

Uneven progress

ASEAN countries are at different stages in their regulatory journey. Some markets are racing ahead while others are playing catch-up.

Singapore leads the region with robust government-backed initiatives, including advanced green building standards and carbon tax mechanisms that directly influence datacentre design and operations.

Malaysia has made significant strides with the introduction of the National Sustainability Reporting Framework (NSRF) in September 2024. Malaysia is the only jurisdiction in South-East Asia to adopt the IFRS Sustainability Disclosure Standards with limited transition, says Farhana Jabir, director of sustainability and climate change at PwC Malaysia.

‘Such sustainability-related financial reporting will require close collaboration between sustainability practitioners and finance teams in addressing considerations under their sustainability plans and initiatives,’ Jabir says.

Cherine Fok, ESG consulting partner at KPMG Singapore, says finance and accounting teams across ASEAN are preparing for rising ESG (environmental, social and governance) compliance expectations. She explains: ‘This involves setting up reliable systems to gather and track ESG data, especially on energy use, water consumption and waste generated. Teams are also staying on top of growing ESG regulations throughout the region.’

Measuring complexity

For finance teams, measuring and accounting for the carbon footprint of digital infrastructure is no easy task. ‘Scope 3 emissions encompass the entire value chain from manufacturing to disposal,’ Fok points out. ‘Quantifying embodied carbon across servers, cooling systems and construction materials may pose a challenge for companies with complex upstream and downstream activities.’

Jabir identifies two major challenges: conventional financial systems were not designed with environmental reporting in mind, and the industry lacks standardised reporting methods. ‘As this is an ever-evolving area, there is a lack of standardisation on how reporting and accounting such impact could be done by organisations,’ she says.

Companies are rolling out a range of solutions to address these challenges. ‘To decarbonise these facilities, businesses may implement a comprehensive strategy that encompasses all aspects of their operations,’ Fok says. Some are partnering with suppliers on data-sharing initiatives and standardised reporting, while investing in smart metering and AI-powered energy management systems.

Datacentres across South-East Asia are greening their operations in response to multiple pressures. The drivers include regulatory compliance, cost efficiency demands, investor scrutiny and market competition, according to GreenA Consultants, a sustainability and environmental consulting firm.

Operators are pursuing various paths to sustainability. Many are installing on-site renewable energy sources, such as solar, while others are securing long-term deals with green energy providers, Fok says. Virtual power purchase agreements and renewable energy certificates have become popular alternatives for accessing renewable energy.

However, implementing solutions is not straightforward. ‘Each market adoption is very different, and the infrastructure differs,’ GreenA points out. Solutions that succeed in Singapore may not translate well to Indonesia because of different infrastructure capabilities and sustainability priorities.

Change drivers

With their oversight of both financial and operational metrics, finance leaders play an important role in driving sustainable change. ‘Finance leaders are uniquely positioned to reframe sustainability as an enabler of more resilient, efficient and profitable digital operations,’ Fok says.

Jabir stresses the importance of cross-functional collaboration. ‘Collaboration between chief financial officers, chief sustainability officers and chief information/technology officers will be critical in ensuring a more cohesive decision is made before formulating an organisation’s digital strategy,’ she says. Working across departments has become essential as investors pay closer attention to companies’ green IT credentials.

‘Datacentres with strong sustainability reporting and assurance will attract favourable financing and investments, while underperformers face scrutiny and potential divestment,’ Fok says. Investors are zeroing in on key performance metrics, including power and water usage effectiveness and carbon emissions per unit of data processed.

‘It’s a straightforward, numbers-driven decision,’ GreenA says. Finance and accounting teams focus on ‘metrics that provide the best returns’ and trust that operational teams have vetted other aspects. This pragmatic approach helps bridge the gap between environmental goals and financial performance.

As South-East Asia’s datacentre industry matures, it will need to respond to both stricter regulations and growing demands from investors for sustainable operations. ‘Maintaining a balanced perspective is crucial in building trust,’ Jabir stresses. ‘Both sustainability risks and opportunities disclosed need to be aligned with the organisation’s internal enterprise risk management process as well as its short-, medium- and long-term strategy.’