As global investment driven by AI and cloud computing fuels a data-centre boom, including in Australia, brokers and insurers have a critical role to play. There is an increasingly urgent need to steer operators towards cooling, siting and disclosure decisions that do not deepen water stress on the driest inhabited continent. There is a commercial imperative as well: data centres that cannot demonstrate sustainable water sourcing and resilient cooling are likely to face tougher insurance conditions, including closer underwriting scrutiny, higher costs and, in some cases, restricted cover.
On the one hand there are increasing cooling requirements driving up both water and electricity demand. But there are also issues with the current cooling systems used by data centres.
“If data centres continue to use traditional cooling systems and the temperature increases through climate change, you will see increased evaporation and increased loss of water,” said Andrew Stafford (pictured), FM’s operations manager for Australia and New Zealand. “Over a period of time, unless something's done, water stress will increase in Australia.”
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Counterintuitively, Australia ranks strongly overall in FM’s 2026 Resilience Index with “exceptionally strong results in water stress (99.88), signifying a plentiful and reliable supply.” However, the same FM analysis still flags water stress as a relative vulnerability in the national risk profile. FM places Australia 13th overall, but 31st on water stress, underscoring the gap between broad resilience and resource pressure.
So while Australia is not, at a macro level, classed as water-stressed in the way more arid Gulf states are, that can hide what matters most for brokers and insurers: concentrated demand, worsening heat, drought cycles and the rapid clustering of data centres around major cities. That is where a seemingly manageable exposure for data centres like water stress starts to look like an underwriting issue. Sydney Water has warned that data centres, which now use less than 1% of Sydney’s drinking water supply, could consume the equivalent of 25% by 2035. IPART’s 2025 final report also said data centres may place substantial pressure on water infrastructure.
“I think it's fair to say data centres would contribute to an increase in Australia's water stress,” said Stafford.
For brokers, that should move water into the core risk and placement conversation. If a data-centre submission still focuses mainly on uptime, power redundancy, fire protection and cyber resilience, it is missing a fast-growing operational, infrastructure and community exposure.
So water risk now cuts across insurability as well as sustainability. A site that depends heavily on potable water in a drought-prone catchment may still function technically today, yet soon become harder to defend commercially, politically and eventually insurably. Baringa, a global management consultancy focused on energy, water and infrastructure, says water risk needs to be embedded in site selection, and argues that reuse and non-potable supply should be treated as part of the future model for resilient data centres, not as optional extras.
The broker’s job, then, now includes pressing earlier and harder on the water questions that shape the risk. What is the long-term water source? How much of it is potable? What happens in a drought year? Is there a recycled-water connection plan? Is water-use intensity being tracked and disclosed? Has the operator stress-tested cooling demand against hotter ambient temperatures and tighter utility supply? Australia’s water utilities are already pushing in that direction. WSAA says early engagement with utilities, transparent disclosure of water and energy metrics, and recycled water and circular-economy solutions should be prioritised for data-centre developments.
Stafford said operators are not blind to the problem. “They're looking to have more closed loop cooling, to capture any evaporation, rather than sending it out to the atmosphere,” he said.
That is the direction brokers should be reinforcing. WSAA has called for recycled water and circular-economy solutions to become preferred pathways, while NSW’s recycled water roadmap is designed to expand water recycling where it is safe, beneficial and cost-effective.
However, Stafford also warned that moving away from traditional water-based cooling can introduce new hazards, including immersion and liquid-cooling systems that may involve ignitable or flammable liquids. That is where insurers and brokers need to be more than passive observers of technology change. The underwriting question is broadening: not only whether a cooling system performs, but whether it is sustainable, dependable under drought pressure and matched by credible controls for fire, leakage and business interruption. Major market players are already building specialist data-centre teams as these risks spread across construction, cooling design, resilience and continuity planning.
“We're definitely investing a lot in understanding the emerging challenges from new technology – that engineering investment and the partnership,” said Stafford.
For brokers, this means pushing clients toward recycled or non-potable water sources, requiring clearer water and energy reporting before renewal, testing drought and heat scenarios in underwriting submissions and making sure any shift to liquid cooling is matched by equally robust fire, leakage and business interruption planning. Water can no longer sit in the ESG appendix. If brokers want to remain credible advisers to data-centre clients and protect their access to competitive insurance terms, it belongs at the centre of the risk conversation.
In Australia, where water is a critical sustainability issue, if the insurance market waits until water stress shows up in restrictions, political backlash, cost escalation or impaired operations, brokers will have arrived too late.
