With the double benefit of holistic energy and resource efficiency, data centers make use of water resources for cooling. This practice, however, is increasingly coming into regulatory focus across Europe. Several legislative initiatives have adopted requirements for efficient water use, especially by data centers, and water-related reporting obligations. 

For operators and developers, this raises the need for a clear understanding of the current regulatory landscape: 

• How is efficient water use mandated? 
• What reporting requirements are in place? 
• Do data centers need government approval for their connection and water use?

To summarize: So far, existing legislation and regulations require numerous reports on water use, but less is required in the way of water use efficiency gains. Water use efficiency, so far, is mostly based on voluntary initiatives such as the Climate Neutral Data Centre Pact (CNDCP). 

But: Experience shows that such reporting requirements ultimately lead to increased regulation. Data centers will need to keep a vigilant eye out for regulatory developments concerning water usage.

Efficient water usage

Freshwater usage is included in EU and national legislation, such as the EU Energy Efficiency Directive—Directive (EU) 2023/1791—(EED) or the new German Energy Efficiency Act (EnEfG), which was recently enforced (for more, see our alert here). While there is no immediate legal obligation to reduce water use to an “efficient” level (whatever that may be), reporting requirements do apply. The EED and EnEfG require companies with certain power consumption levels to implement an energy management system that continuously audits their energy use and identifies measures for improvement or requires them to have an environmental management system in place. While the energy management system (which is different from an environmental management system) does not address efficiency of water usage, data centers are required to report their water usage under both the EED and EnEfG (Annex VII EED, Annex 3 EnEfG, see below).

Reporting obligations on water usage

Energy Efficiency Directive and German Energy Efficiency Act

Both the EED, which must be transposed by EU member states by May 15, 2024, and the EnEfG require data center operators in particular to report on their total water consumption in cubic meters. Data centers with a power demand of their installed IT systems of at least 500 kW must report for the first time by May 15, 2024 and yearly (by March 31) thereafter; under sec. 20 EnEfG, smaller data centers starting at 200 kW must begin reporting by July 1, 2025. The reported data will be collected in a European database and will be publicly accessible in aggregated form.

What needs to be reported? Annex VII EED only speaks of “water usage” but requires the data to be based on the CEN/CENELEC EN standard 50600-4 (until a more specific Delegated Act is adopted by the EU Commission). That means, according to the more detailed Annex 3 EnEfG:

• Total water consumption by source of origin
• Water use efficiency indicator according to “DIN EN 50600-9” (sic.). (They most probably mean DIN EN 50600-4-9 standard, in correspondence with the CEN/EN standards)

Corporate Sustainability Reporting Directive

These EED and EnEfG reporting obligations are the most specific ones, but there are several other requirements with their own focus and field of application. Some of the most notable are obligations under the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation. Companies that fall under the CSRD (starting in 2025 with large “Public Interest Entities,” but extending to listed SMEs in 2026) will need to report on environmental (and other) risks that they are facing. For each main risk, European Sustainability Reporting Standards (ESRS) apply. For water and marine resources, ESRS E3 requires, for example:

• How the enterprise affects water and marine resources (inside out view)
• Any actions taken to prevent or mitigate material or potential negative impact
• Actions to reduce water consumption:
  • Total water consumption in m³
  • Total water consumption in areas of material water risk (local droughts)
  • Additional info regarding the local basin’s water quality and quantity (we presume local municipalities will have this information)
  • Total water recycled and reused in m³
  • Total water stored
• Plans and capacity of the enterprise to adapt its strategy and business model in line with the preservation and restoration of water and marine resources globally
• The enterprise’s material risks and opportunities from impact and dependencies on water and marine resources
• The enterprise’s sustainability policies related to water and marine resources

The information must be published as part of the company’s non-financial report and primarily targets investors, who can then make sustainability-driven investment decisions. To become effective on companies, EU member states must transpose the CSRD into national law.

EU Taxonomy Regulation

Similar to the CSRD and EnEfG reporting obligations are the requirements of the EU Taxonomy Regulation, though the reporting standards are different. Companies that are obligated to publish non-financial reports also must include a section where they explain which business activities are taxonomy-eligible (which are defined in Delegated Acts and, by definition, mean that the activity has potential to be sustainable) as well as which activities are taxonomy-aligned. For this, different KPIs must reported (turnover, CapEx, OpEx). 

In different Delegated Acts, the EU Commission has defined the requirements for taxonomy alignment of different activities in respect of each environmental goal. Data centers fall under activity no. 8.1 of the Climate Delegated Act.¹ For example, to be taxonomy aligned, data centers must demonstrate “best efforts” to implement all expected practices of the European Code of Conduct on Data Centre Energy Efficiency.² Some of these expected practices have an indirect impact on water usage (e.g., optimizing cooling-system operating temperatures), though some practices that have a more obvious impact on water usage are only optional (e.g. capturing rain water).³

Regulation of water usage and connection to water mains

Unlike, e.g. in the electricity and gas sector, there are no uniform rules across the EU or even across Germany on how to gain access to the water mains. The German states (Bundesländer) set the general framework in municipal codes, while the municipalities can decide on the details themselves. As a result, depending on a data center’s location different rules can apply depending on the respective municipality’s approach; moreover, different standard contracts are used by local water suppliers (often municipalities or municipal companies) for water connection and usage. That said, there is a regulatory framework for these contracts. As an example, the municipal codes of both Hesse and Rhineland-Palatinate generally allow municipalities to set rules for compulsory connection to municipal facilities (the municipality must grant access to the water mains) and compulsory use of them (properties must use the municipal mains). Municipalities can limit these obligations to certain local areas or to certain groups of properties or persons.

According to many municipal statutes regarding water, access by data centers can only be requested if there is a supply line available or if the requester agrees to pay for construction of new supply lines. Considering that periods of water shortages and droughts are now becoming more common, it wouldn’t be surprising if municipalities were to set stricter rules for grid access or if they began granting access only under certain conditions, such as with usage limitations or usage efficiency rules. Beyond the initial grid access, water suppliers could also interrupt the water supply.

When you consider the changing environmental conditions and the diverse legal landscape, it becomes apparent that a case-by-case review will be necessary more often than property or data center developers are used to.

Conclusion: Regulation of water usage is gaining speed

While both EED and EnEfG mandate energy efficiency for data centers, efficient water usage isn’t part of this obligation yet. However, larger data centers will have to publicly report data on water usage and efficiency clients under the EnEfG (in Germany) and under the CSRD and EU Taxonomy obligations. That creates at least a competition between data centers regarding environmentally conscious customers and investors. 

In the long run, the foundation for stricter rules on efficient water usage has been laid. Data center operators should especially check and apply the current European Code of Conduct on Data Centre Energy Efficiency to be generally prepared for new developments.

As for access to freshwater, there’s no uniform legal framework, though increasing water stress will present practical hurdles that haven’t been addressed so far. 

1. Available here.↩
2. Available here. ↩
3. The Delegated Act on water and marine resources doesn’t even mention hosting, etc., as a taxonomy-eligible activity.↩