Signals: S7 Water Stress & Allocation · S9 Zoning, Codes & Land Use · S3 Capital Allocation Flows
On Wednesday we put a Vancouver rental building through a lender’s flood test, and watched one insurance renewal shrink a loan. Today the water problem runs the other way. In Johor, in southern Malaysia, just across the causeway from Singapore, there isn’t enough of it. And the state has started screening which data centers get approved.
The Moment
On August 28, 2026, Malaysia’s national water regulator, SPAN, reported on the 49 major dams that feed the treatment plants of Peninsular Malaysia and Labuan. Thirty-seven were at normal levels. Nine were at warning level, six in Johor, and one was critical.
SPAN warned that supply disruptions could worsen if levels kept falling. All the treatment plants are still running, and nobody’s taps are dry, so the warning is data-driven, not panic-driven.
Three weeks later, driven by the data center boom, the Malaysian broker RHB Research valued Ranhill Utilities, the listed parent of Johor’s water operator. RHB counts about 8.5 gigawatts of incoming data center capacity in Johor, on top of 1.1 gigawatts already running, which means water is no longer a utility line item in the operating budget. It’s an approval condition.
For investors, lenders and insurers, that turns a water contract into something that looks like a closing condition.
The Story
The state hasn’t frozen data center approvals. It screens them.
In the November 2025 sitting of the Johor state assembly, housing and local government chairman Mohd Jafni Md Shukor said Johor would no longer approve Tier 1 and Tier 2 data centers. That’s how both The Star and Bloomberg reported it.
In March, 2026, the Menteri Besar, the state’s chief minister, put it on the record through Bernama, Malaysia’s official news agency. The committee will only approve Tier 3 and Tier 4 data center developments that use air-cooling technology.
A word for data center readers. Tier in this context refers to the industry’s reliability grade, Tier 1 to Tier 4, which measures redundancy and uptime. It isn’t a water tier. The state is using the reliability label as a screen, and tying it to water used for cooling.
The state’s own written answer to that same assembly sitting sets out the rest. It’s translated from Malay so that some nuance may be lost.
The approving committee considers first the applications that don’t use the public supply from Ranhill SAJ.
It makes alternative water a condition of approval.
It requires water-use efficiency below 1.8.
It approves small volumes of water, with 2031 as the year of use.
And it follows SPAN’s water supply guideline, in force since September 1, 2025, which puts reclaimed water for data center cooling ahead of treated drinking water.
There was also talk of a pause. In November 2025, the South China Morning Post reported that investors had been asked to hold off water-cooled expansion for at least 18 months, until mid-2027. But in February, the federal trade ministry, MITI, told Parliament that as of January 2026, no data center investment in Malaysia had been deferred because of water.
Meanwhile, approvals continue.
In May, the state assembly heard that 5,628 megawatts had been approved across 28 data center projects, and that the twenty centers already running were using about 920 megawatts. That’s definitely not a freeze. But it is a screen, and one that’s getting tighter.
In February, households in Benut, Pontian and Simpang Renggam were moved to scheduled water supply. The state’s works chairman said the cause was drought, and that no data center takes water in those areas. But even a correct denial costs something. Every dry spell now puts data centers in the headlines, and the approving committee answers to the same voters.
Structural Forces
Four forces turn this into an underwriting consideration.
First, water now has its own price.
Since August 2025, Johor charges data centers a dedicated rate of RM5.33 per cubic meter. That’s about 50 percent above the old top commercial rate of RM3.55. At the same time, the top rate for every large commercial user rose by 49 percent to RM5.30. So data centers pay three sen more than everyone else at the new rate.
The category is new. The price is mostly the market repricing of water for everyone.
What does that cost an existing plant? In our modeled scenario, take a 100-megawatt data center that still cools with mains water. Mains water is the municipal drinking supply, piped from the local utility and used to cool high-heat servers. The Straits Times figure for that design is about 4.16 million liters per day. At RM5.33, that’s about RM8.1 million per year for water. That’s a legacy design Johor would no longer approve, so it’s the exposure only an existing owner carries.
Second, the approval gate is a compliance test.
By November 2024, officials reported rejecting almost 30 percent of applications for weak sustainability practices. For land held for data centers, the entitlement now depends on a water test. That feeds straight into land and resale value.
Other places are writing similar tests.
For example, New York’s Executive Order 62, signed in July, pauses incomplete state environmental applications for data centers of 50 megawatts or more. Pennsylvania’s order in August requires operators to report annual water use and peak-day demand, and sets strict conservation requirements for developers who want state support.
Third, headroom is thin where the servers are. By headroom, I mean the gap between what the treatment plants can produce and what the state is already using. In Greater Johor Bahru and Kulai, the state told its assembly in September 2025 that design capacity was 1,274.1 million liters per day and average production had reached 1,129.1 million liters per day. That’s a reserve margin of 11.4 percent.
Statewide, the margin is wider, 14.5 percent in the same state data and 12.8 percent in RHB’s estimate. The zone is what matters for data centers.
Against that margin, the federal minister told Parliament that Johor’s data center water demand is projected to reach 384 million liters per day by 2030. RHB’s ceiling may be about 400, based on the old water-cooled figure scaled across every megawatt.
And fourth, public money is years behind. The state has 38 water projects worth RM15.3 billion planned out to 2050. Johor and the federal government are putting about RM5 billion into three reservoirs and three treatment plants. None of that is running yet.
Until it is, a site’s water contract is the scarce thing.
The Next Chapter
So where’s the capital?
This is where the fintech and finance stories come in.
Robin Khuda founded AirTrunk, an Asia-Pacific data center platform, and still runs it as CEO. Blackstone and the Canada Pension Plan Investment Board, CPP Investments, bought it in December 2024, valuing the company at over A$24 billion.
In August 2025, AirTrunk closed a sustainability-linked refinancing round, backed by more than 60 banks and financiers. It covers assets in Australia, Hong Kong, Malaysia and Singapore.
AirTrunk puts the refinancing at about A$15.76 billion excluding Japan, 100 percent of it ESG-linked, and total ESG-linked debt at over A$17.75 billion including Japan. Khuda’s point was that linking the whole global financing structure to sustainability is what a long-term commitment to scaling responsibly looks like.
But let’s look at what Blackstone and CPP Investments actually bought. Not buildings. Growth. And growth here meets the utility before it meets the capital.
In May, 2026, Blackstone used a sophisticated risk-mitigation strategy, bringing in the International Finance Corporation (IFC - part of the World Bank Group) for a US$175 million debt-and-equity injection into AirTrunk’s Johor campuses. IFC’s disclosures verify that at full capacity, the facilities are projected to consume 910 million liters of water annually. Its action plan requires the project to upgrade its monitoring of natural resource consumption to IFC standards, which cover water. That is a monitoring condition, not a cap. The lender bought visibility.
Now, the part that ties this month together, because here the financing writes the engineering spec. AirTrunk published a Green Financing Framework in April 2025. It names three eligible categories for green money, and one of them is water efficiency. For a new data center in a warm climate like Johor, it sets an annual PUE target of 1.4.
PUE stands for Power Usage Effectiveness and measures a data center’s energy efficiency. The global average is 1.52, per the Uptime Institute. Meanwhile, Germany’s Energy Efficiency Act mandates new builds achieve a PUE of 1.2 or lower.
In February 2025, AirTrunk announced JHB2, its second Johor campus, at a design PUE of 1.25 using liquid cooling. Publicly available data from Johor and AirTrunk vary. It seems the actual PUE ranges somewhere between 1.25 (the target) and 1.4 (the green loan threshold).
Here’s the gap a lender should ask about. AirTrunk’s portfolio water usage effectiveness for FY25 is 0.89 liters per kilowatt-hour, comfortably inside Johor’s 1.8. But the first Johor campus is excluded from that figure, because the report counts only sites with twelve months of operation, and the framework reports water at portfolio level. So there is no published Johor water number yet. The first one arrives in the FY26 report.
One more thing worth your attention. AirTrunk’s own FY25 table sorts water withdrawal by water stress level. Melbourne and Sydney sit in the high band. Johor sits in the medium-high or lower band, grouped with Hong Kong, Osaka, Singapore and Tokyo. That is the operator’s classification, while the state rations supply and screens approvals. Underwrite the asset, and you underwrite that disagreement.
And yet outliers still exist, at least on transparency. In August, STT GDC, the Singapore operator, secured up to US$1.37 billion of green financing for a campus of up to 166 megawatts in Iskandar Puteri, Johor. The only water fact in the announcement is a 41.2 percent improvement in company-wide water-use efficiency since 2020. No water condition is disclosed. That doesn’t mean none exists, because the loan agreement isn’t public. But the state screens every approval on water, and the biggest Johor green loan in 2026 says nothing about it.
Meanwhile insurers are watching the soaring cost of risk transfer. The Swiss Re Institute warns that if cities cut water supply in a drought, a data center may have to shift cooling modes or temporarily shut down. It expects global data center insurance premiums to grow from US$10.6 billion to US$24.2 billion by 2030. In other words, it will more than double within the next four years.
One might read the news and think data centers are a tech play with a PR problem. But from an operator’s side, the considerations are a much bigger balancing act before even considering the end product. Site prep and building maintenance, local and regional policy restrictions, lender targets and reporting transparency, and insurance considerations all factor in, while you also face the possibility of not having enough power to run or water to cool.
A data center stops being valued on megawatts and starts being valued on its water contract. Sites with a signed non-drinking, industrial water supply should trade above sites without one, and lenders should treat that contract the way they treat a grid connection, as a condition of drawdown. The upside is the treatment plants landing on time. The downside is a dry year arriving first.
The Strategic Question
So here’s the question for you. If you own, finance, or insure a Johor data center, or land zoned for one, can you show the committee, the lender, and the next buyer four things?
A signed source of non-drinking water?
A water usage effectiveness below 1.8?
A PUE in alignment with local targets?
And an operating budget that holds at RM5.33 per cubic meter?
If you can’t, the risk isn’t a flood or a fire. It’s an approval you can’t get, or a campus that can’t expand.
And if you invest outside Malaysia, the question travels. In every market where you underwrite data centers, who decides how much water the site gets, and on what test?
As always, KNOW YOUR SIGNALS and BE CLIMATE READY!
Jamie
Go Deeper
This is a Story & Future Thinking brief, so there is no companion workbook. The blank master CRDF Signal Tracker™ and Deal Stress Test™ are free and available at climatereadyre.com/tools.
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Sources
Every figure above includes the data coverage date, the publication date, and the date I verified it.
The dam reading — 49 major dams feeding Peninsular Malaysia and Labuan: 37 at normal level, 9 at warning level (6 in Johor), and 1 critical, with all monitored treatment plants still operating normally.
SPAN, Malaysia’s national water regulator, reported via Bernama · Data as of Aug 28, 2026 · Published Aug 28, 2026 · Accessed Sep 2026
The scope is the 49 major dams that feed treatment plants. It is a regulator’s statement relayed by the national news agency, not a published dam-level dataset.
The incoming load — about 8.5 gigawatts of incoming data center capacity in Johor on top of 1.1 gigawatts already operating, with a statewide water reserve margin estimated at 12.8 percent.
RHB Research, as reported by Business Today · Data as of Sep 2026 · Published Sep 19, 2026 · Accessed Sep 2026
This is a press report of a broker note. The note itself is not public, and it gives no basis for RHB’s water ceiling. Nothing in this brief is built on it.
The tier screen — Johor would no longer approve Tier 1 and Tier 2 data centers, per housing and local government chairman Mohd Jafni Md Shukor in the November 2025 state assembly sitting.
The Star, carrying Bloomberg · Data as of Nov 2025 · Published Nov 26, 2025 · Accessed Sep 2026
The tier wording appears in press reports of the sitting, not in any state document located for this brief.
The chief minister on the record — the committee will only approve Tier 3 and Tier 4 data center developments that use air-cooling technology.
Menteri Besar Onn Hafiz Ghazi, via Bernama and Malay Mail · Data as of Mar 10, 2026 · Published Mar 10, 2026 · Accessed Sep 2026
A statement on the record, not a gazetted instrument.
The written approval conditions — non-Ranhill SAJ applications considered first, alternative water as a condition of approval, a water usage effectiveness below 1.8, small volumes with 2031 as the year of use, and SPAN’s water supply guideline in force since September 1, 2025, prioritizing reclaimed water for cooling.
Dewan Negeri Johor, written answer A140, November 2025 sitting · Data as of Nov 20, 2025 · Published Nov 20, 2025 · Accessed Sep 2026
Translated from Malay by CRREI. The planning guideline that the answer refers to for the 1.8 threshold was not opened, and the answer contains no tier wording.
The pause that was reported, and the federal answer — investors reported as asked to hold off on water-cooled expansion for at least 18 months, until mid-2027.
South China Morning Post · Data as of Nov 18, 2025 · Published Nov 18, 2025 · Accessed Sep 2026
A reported request with no official named, and it is disputed by the trade ministry’s own answer to Parliament.
The federal position — as of January 2026, no data center investment in Malaysia had been deferred, was at risk of deferral, or might move abroad because of water constraints.
MITI written parliamentary reply, via Bernama · Data as of Jan 2026 · Published Feb 10, 2026 · Accessed Sep 2026
A federal answer about deferrals. It does not address whether individual applications were refused at the state level.
Approvals still running — 5,628 megawatts approved across 28 data center projects, with the twenty operating centers using about 920 megawatts.
Lee Ting Han in the Johor state assembly, via Media Digital Johor · Data as of May 2026 · Published May 6, 2026 · Accessed Sep 2026
These are electricity and approved capacity figures, not IT load, so they are not comparable to a stated IT megawatt figure.
The February disruptions and the state’s denial — households in Benut, Pontian and Simpang Renggam moved to scheduled water supply, with the works chairman naming drought as the cause and stating that no data center draws water in those areas.
Works exco Mohamad Fazli, via Malaysia Gazette · Data as of Feb 2026 · Published Feb 17, 2026 · Accessed Sep 2026
Translated from Malay. The state denied it, and no independent audit of the affected plants was found.
The tariff — a dedicated data center rate of RM5.33 per cubic meter effective August 1, 2025, with the commercial rate above 35 cubic meters per month rising 49 percent from RM3.55 to RM5.30.
Dewan Negeri Johor, written answer A49 · Data as of Effective Aug 1, 2025 · Published Nov 19, 2025 · Accessed Sep 2026
Cabinet-approved and gazetted by the federal government. The data center rate sits only three sen above the new commercial top rate, so most of the increase is a repricing for all large users.
The water-cooled design figure and the rejection rate — about 4.16 million liters per day for a 100-megawatt water-cooled data center, and officials reporting by November 2024 that almost 30 percent of applications had been rejected for insufficient sustainable practices.
The Straits Times, via Water & Wastewater Asia · Data as of Nov 2024 to Aug 2025 · Published Aug 28, 2025 · Accessed Sep 2026
The 4.16 million liters per day is a generic figure for water-cooled designs, which Johor no longer approves. The base number of applications behind the 30 percent is not stated.
The water bill for a legacy design—a 100-megawatt data center still cooling with mains water at about 4.16 million liters per day — pays about RM8.1 million per year for water at RM5.33 per cubic meter.
CRREI modeled scenario · Method: the published water-cooled consumption figure for a 100-megawatt design multiplied by the gazetted data center tariff over a full year · Modeled — not a specific asset
This applies only to an existing water-cooled plant. Johor would not approve the design today, so it is not the cost of a new campus.
The headroom in the zone — Greater Johor Bahru and Kulai design capacity of 1,274.1 million liters per day against average production of 1,129.1 million liters per day, a reserve margin of 11.4 percent, with a statewide margin of 14.5 percent.
Mohd Firdaus Abdullah, opinion column relaying September 2025 state assembly data, Malay Mail · Data as of Sep 2025 state assembly data · Published Sep 11, 2026 · Accessed Sep 2026
An opinion column relaying state figures. The underlying state document was not located, so the numbers are attributed as reported.
The demand projection — Johor data center water demand projected to reach 384 million liters per day by 2030.
Deputy Prime Minister Fadillah Yusof, written parliamentary reply, via The Edge Malaysia · Data as of Projection to 2030 · Published Nov 19, 2025 · Accessed Sep 2026
The reply does not state the basis for the projection.
The same test elsewhere, part one — New York Executive Order 62 pauses state environmental applications that are not yet complete for data centers of 50 megawatts or more, citing water use.
State of New York, Executive Order No. 62 · Data as of Jul 14, 2026 · Published Jul 14, 2026 · Accessed Sep 2026
In force until the state completes its final generic environmental impact statement. It pauses incomplete applications, not operating facilities.
The same test elsewhere, part two — Pennsylvania Executive Order 2026-05 requires data center operators to report annual water use and maximum day demand, and sets strict water conservation requirements for developers seeking state support.
Commonwealth of Pennsylvania, Governor’s Office · Data as of Aug 18, 2026 · Published Aug 18, 2026 · Accessed Sep 2026
A reporting and conditionality order tied to state support, not a permitting ban.
The public program — 38 water projects worth RM15.3 billion planned for 2025 to 2050, with about RM5 billion from Johor and the federal government going into three reservoirs and three treatment plants.
Bernama, via The Star · Data as of Jul 2026 · Published Jul 23, 2026 · Accessed Sep 2026
Proposed or underway. None of the named plants or reservoirs is operating yet, and the RM5 billion figure combines state and federal funding.
The acquisition — CPP Investments committed to a 12 percent interest in AirTrunk in a transaction implying an enterprise value of over A$24 billion, completed in December 2024.
CPP Investments · Data as of Sep 4, 2024 · Published Sep 4, 2024 · Accessed Sep 2026
Neither the Blackstone nor the CPP release states Blackstone’s percentage, and the founder invested alongside them, so no published figure exists for Blackstone’s stake.
The refinancing — backed by more than 60 banks and financiers, covering assets in Australia, Hong Kong, Malaysia and Singapore, at about A$15.76 billion excluding Japan, 100 percent ESG-linked, with over A$17.75 billion of ESG-linked debt including Japan.
AirTrunk, FY25 Sustainability Report · Data as of FY25 (to Jun 30, 2025) · Published Oct 23, 2025 · Accessed Sep 2026
The KPIs are named, but no thresholds and no margin steps are published, so the size of the incentive cannot be checked. The figures are company-wide, not Johor.
The lender’s condition is a US$175 million debt-and-equity package for AirTrunk’s Johor campuses, whose IFC disclosures project about 910 million liters of water per year at full capacity and require upgrading monitoring of natural resource consumption to IFC standards.
IFC, ESRS 52336 AirTrunk Johor · Data as of Jul 2026 · Published Jul 13, 2026 · Accessed Sep 2026
The US$175 million amount is not stated on IFC’s own disclosure page and comes from the trade press. The action plan item is a monitoring requirement, not a cap on water use.
The financing that writes the spec — AirTrunk’s Green Financing Framework names water efficiency as one of three eligible green categories and sets an annual PUE target of 1.4 for a new data center in a warm climate.
AirTrunk, Green Financing Framework · Data as of Apr 2025 · Published Apr 2025 · Accessed Sep 2026
The framework states a target, not a covenant, and its water impact reporting is portfolio-level only, so you can't read a single campus from it.
The design number — JHB2, AirTrunk’s second Johor campus, announced at a design PUE of 1.25 using liquid cooling.
AirTrunk, JHB2 announcement · Data as of Feb 12, 2025 · Published Feb 12, 2025 · Accessed Sep 2026
AirTrunk’s current campus page shows a different design PUE for the same site, and the company or any Malaysian authority has not published a reason for the change.
The reporting gap — portfolio water usage effectiveness of 0.89 liters per kilowatt-hour for FY25, with the first Johor campus excluded because the report counts only sites operating for at least twelve months, and Johor placed in the medium-high or lower water stress band alongside Hong Kong, Osaka, Singapore and Tokyo.
AirTrunk, FY25 Sustainability Report, Appendix 1 and Appendix 2 · Data as of FY25 (to Jun 30, 2025) · Published Oct 23, 2025 · Accessed Sep 2026
The water stress classification is the operator’s own, drawn from the WRI Aqueduct atlas, and is not the Johor state government’s view. The efficiency metrics carry limited assurance; the classification does not.
The loan that says nothing about water — up to US$1.37 billion of green financing for a campus of up to 166 megawatts in Iskandar Puteri, Johor, with a company-wide water usage effectiveness improvement of 41.2 percent since 2020 as the only water fact released.
STT GDC release, via Bernama · Data as of Aug 2026 · Published Aug 13, 2026 · Accessed Sep 2026
No water condition is disclosed, which is not the same as none existing. The loan agreement is not public, and the efficiency figure is company-wide, not Johor.
The insurance view — if municipalities reduce water supply because of drought or capacity, a data center may have to shift cooling modes or temporarily shut down, and global data center insurance premiums are expected to grow from US$10.6 billion to US$24.2 billion by 2030.
Swiss Re Institute, Sigma Insights 07/2026 · Data as of 2026, projection to 2030 · Published Mar 27, 2026 · Accessed Sep 2026
The study is US-focused with no Malaysia or Johor analysis, and the premium figure is a scenario, not a priced product.
Commentary and analysis only. Not investment, financial, legal, tax, or professional advice. CRDF tools are illustrative; examples are composites drawn from public data. Do your own due diligence and consult qualified professionals.
I run this analysis on specific deals. If you own, finance or insure a data center site whose water supply is not yet contracted, book 20 minutes.
Jamie Wolf, MBA — Founder & Publisher, Climate-Ready Real Estate Investing, © 2026, CR REI Holdings LLC