ESG Focus: The Little Big Things – 23-09-2025

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Little Big Things focuses on some of the biggest ESG issues, from challenges around Data Centre growth, to emissions targets and sustainable seafood.

-Data centres, AI and the strain on power and water
-Supermarket giants face AGM pressure on seafood sourcing
-Balancing ambition and achievability in Australia’s climate targets

By Danielle Ecuyer

FNArena’s dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

The AI megatrend poses challenges for energy, water and carbon abatement

Carbon Brief reports data centres currently account for just over 1% of global electricity demand and around 0.5% of CO2 emissions, but usage has been growing rapidly at roughly 12% a year since 2017.

The International Energy Agency (IEA) projects consumption will more than double to around 945TWh by 2030, equal to Japan’s current electricity use. Artificial intelligence is the key driver, with its share of data centre power expected to rise from 5–15% today to as much as 35–50% by the end of the decade.

This would see data centres contribute 8–12% of growth in global electricity demand by 2030, alongside other major factors such as electric vehicles and air conditioning.

The impact will be especially acute in advanced economies.

In the US, data centre demand is forecast to climb from 4% of national electricity use in 2023 to 7–12% by 2028, while in Ireland it could reach 32% by 2026, with Dublin already close to 80%.

Although renewables are expected to supply the majority of data centre power by 2035, fossil fuel use is still set to rise in absolute terms, with gas-fired generation potentially more than doubling.

Without substantial investment in grids and clean energy, this growth risks straining electricity systems and slowing progress towards climate targets.

Findings on expected data centre energy and water demand 

Morgan Stanley recently met with JPMorgan’s Infrastructure Investment Banking and Centre for Carbon Transitions (CTT) in New York to discuss the forecast US$3trn of data centre capex from 2025 to 2028, how it will be funded, and the ability to align carbon abatement targets.

Hyperscalers, think Big Tech cloud providers like Microsoft, Google, and Amazon, remain focused and “serious” on staying with net zero goals. JP Morgan anticipates the hyperscalers will continue to add renewables to the electricity grid, as well as increasing nuclear exposure, as seen with recent updates, while also looking at geothermal and carbon offsets.

Specifically, a wide range of new power generation will be needed to feed the large volumes of electricity from growing AI infrastructure demand. The growth is anticipated to be very robust for natural gas, geothermal, and solar power, as well as boosting investment in energy storage and transmission.

Nuclear will fill demand over the next decade, with pressure on power grid reliability likely to underpin natural gas-fired generation as a source of baseload power. The growth in demand is already challenging turbine volumes. The US government has also been putting in place energy policies to advance and support the growth in nuclear power and the development of new technologies, like small modular reactors.

For those interested in some of the changes, FNArena has a dedicated weekly Uranium update which has been highlighting the global shift to expanding nuclear power generation as a zero-emission energy technology.
For more reading see https://fnarena.com/index.php/financial-news/fnarena-windows/?sector=70

Morgan Stanley has also raised the question of water usage and the growth in artificial intelligence. Water is a critical component for data centre cooling, electricity generation, and semiconductor manufacturing.

The broker estimates AI will underpin a rise in annual water consumption to circa 1,068bn litres by 2028 as a base case scenario, which is an eleven fold rise from 2024 estimates for data centres and electricity generation.
Semiconductor manufacturing is also water intensive, and what is considered a “typical” facility needs up to 5m gallons of ultrapure water per day.

Notably, while water usage is rising substantially, the analyst suggests in relative terms the demand will be conservative compared to traditional water extraction and use from major sectors such as irrigation, the dominant demand source which has seen the largest increase from 1960–2024, beating heavy users such as industrials and live stock.

The increase in AI data centre water consumption estimated for 2024–2028 is less than 1% of the average irrigation withdrawals increase from 1960–2024. However, Morgan Stanley adds the rate of growth will necessitate appropriate water management and stewardship as AI infrastructure scales, particularly at a local level where the impacts can be more acutely felt.

When potential data centre water usage conflicts with drought-prone areas, local, state, and federal authorities have already limited or knocked back data centre developments and cut water usage for semiconductor manufacturing.

Increasingly, regulations are evolving to manage water usage standards over data centre Water Usage Effectiveness, and incentives are being implemented to develop more sustainable practices.

Major food retailers remain in the Maugean Skate spotlight

Jarden homes in on sustainable seafood practices at the upcoming 2025 AGMs of Coles Group ((COL)) and Woolworths Group ((WOW)), where shareholders will vote on two seafood-related resolutions.

The first resolution calls for each company to report on risks their sourcing poses to endangered species listed under the EPBC Act (Environment Protection and Biodiversity Conservation Act), while the second asks them to align seafood policies with global best-practice standards, such as the Conservation Alliance for Seafood Solutions guidance, and disclose progress in 2026 sustainability reports.

The analyst considers Coles has taken a more proactive approach by conducting a species-level review against the EPBC Act, identifying risks to the Maugean skate at Macquarie Harbour (Tasmania) and the Southern Right Whale.

It has integrated TNFD (Taskforce on Nature-related Financial Disclosures) into risk management, benchmarked against peers, and requires Own Brand seafood to be certified by schemes such as BAP (Best Aquaculture Practices), ASC (Aquaculture Stewardship Council), MSC (Marine Stewardship Council), or GLOBALG.A.P. (Good Agricultural Practice). Coles also reports reducing exposure to Macquarie Harbour, though it has not set quantified reduction targets or a timeline.

While elements of its program align with best-practice guidance, Jarden highlights management has not committed to full alignment, and accountability is diluted by attributing risks partly to broader environmental pressures.

Woolworths has also reviewed seafood sourcing, but unlike Coles, its TNFD-informed assessment was not benchmarked against the EPBC Act.

The latter company concluded no new material risks were identified, a stance investors are likely to see as underplaying concerns around the Maugean skate.

Woolworths continues to rely heavily on certification schemes and has expanded customer-facing labelling, such as MSC-certified tuna products, while reviewing the new ASC standard. However, it has not disclosed reductions in Macquarie Harbour sourcing, set phase-out commitments, or aligned policies with best-practice standards.

The analyst also notes Woolworhs faces an OECD (Organisation for Economic Co-operation and Development) complaint over alleged due diligence failures and the use of “responsibly sourced” labeling.

Overall, Jarden believes both supermarket operators have strengthened due diligence and certification reliance, but neither has committed to time-bound targets or full best-practice alignment.

Currently, Coles is more transparent and engaged with stakeholders, while Woolworths remains more compliance-driven and focused on labeling.

The lack of measurable commitments leaves both companies exposed to continued investor and regulatory pressure on seafood sustainability.

How realistic are Australia’s new emission reduction targets?

Macquarie throws out a catchy title “Emission Impossible? Balancing Achievable & Ambitious” regarding the Australian Federal Government’s -62%–70% emission reduction target by 2035 from 2005 levels.

The 62% is viewed as achievable by the government and 70% as ambitious. Both are set against the -43% emission reduction target for 2030.

The broker notes emissions need to fall by around -230Mt CO2 over the next decade and argues more ambitious state government targets should assist the Federal Government.

NSW is targeting a -70% reduction by 2035 and Victoria’s target is -75% to -80% reduction by 2035. The Queensland targets are currently under review.

The Climate Change Authority’s modeling reflects around 50% of emissions reductions to come from the electricity grid over the next 10 years, with the Federal Government announcing a further $2bn to the Clean Energy Finance Corporation (CEFC) to assist large-scale solar and wind projects.

There is a notable gap between the 2030 renewable energy target of 82% and circa 40% currently, as the transition is taking longer than anticipated. With the recent announcement of Origin Energy’s ((ORG)) plan to put its -$8bn Gippsland wind project on hold due to an uncertain macro backdrop, the development of wind projects has become more challenged.

For industry, the Federal Government will establish a $5bn Net Zero Fund within the National Reconstruction Fund (NRF) to help heavy industry decarbonise, alongside a review of the Safeguard Mechanism in 2026, which currently regulates around 56% of industrial scope 1 emissions.

The Productivity Commission has recommended lowering the coverage threshold from 100,000 to 25,000 tonnes of CO2e, which would bring more facilities under the scheme, while the Climate Change Authority (CCA) has suggested extending the baseline decline rate from 2030 to 2035, giving industry more time to adjust.

Together, the fund provides financial support to aid the transition, while the review could tighten compliance and broaden the scheme’s reach.

Regarding the transport sector, the government has announced a $1.1bn investment in green fuels, which is seen as a positive step but will only deliver a material benefit for Qantas Airways ((QAN)) if paired with a mandate requiring the use of sustainable aviation fuel.

A review of the New Vehicle Efficiency Standard (NVES) is scheduled for 2026, while an additional $40m has been committed to expand the rollout of curbside fast electric vehicle (EV) chargers, supporting broader transport sector decarbonisation.

On balance, Macquarie views the more ambitious state targets as supportive, while the key for emissions-intensive companies will be the review of the Safeguard Mechanism, which could be a positive for larger emitters by creating a more level playing field with smaller emitters that are currently excluded from the mechanism.

FNArena’s dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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