While Malaysia is positioning itself as ASEAN’s leading data center hub, Hong Leong Investment Bank Research said it must balance attracting investors with enforcing credible sustainability standards.

The research house said in a note on Wednesday that the Malaysian government now faces a delicate balancing act.

“A framework that is overly stringent risks deterring investors and redirecting capital to competing markets such as Singapore, Indonesia, or Thailand，

”Conversely, a framework that is too lenient may undermine Malaysia’s environmental credibility and fail to address the sector’s mounting resource intensity,” it noted.

It also said current policies and guidelines have laid a strong foundation, but to secure a leadership position, Malaysia’s strategy must evolve toward a more comprehensive and enforceable framework, similar to the trajectory seen in Europe and Singapore.

It is noted that Malaysia has been actively rolling out incentives ranging from tax breaks to investment grants to attract global tech companies and establish itself as ASEAN’s premier data center hub.

These efforts are anchored in the Malaysia Digital Economy Blueprint, which envisions the country as a digital economy leader by 2030.

Data centers are central to this ambition, serving as the backbone of cloud computing, artificial intelligence (AI), and digital services.

Hong Leong highlighted that Malaysia’s upcoming National Sustainable Data Centre Framework, expected in Oct 2025, will centralize approvals under Malaysian Investment Development Authority (MIDA) and harmonize policies across agencies.

Key measures that it expects likely include a dedicated data center water tariff of MYR 5.50 ($1.31)/m³ by the Ministry of Energy Transition and Water Transformation (PETRA), alongside support for reclaimed sources and district cooling, as well as progressive renewable sourcing, potentially 30 percent of load for new facilities by 2030, backed by Corporate Green Power Program (CGPP) and Corporate Renewable Energy Supply Scheme (CRESS) grid reforms that cut access costs and favor renewable energy co-location.

For Hong Leong, explicit renewable energy sourcing obligations, combined with water conservation measures, will push operators toward more sustainable practices.

These moves align with national targets of 40 percent renewable energy by 2035 and net zero by 2050, while lowering carbon usage effectiveness (CUE) baselines and strengthening Malaysia’s positioning as a competitive green data center hub in Southeast Asia.

“This evolution reflects a broader regional trend where sustainability has become not just a compliance requirement but a differentiator in attracting international investment,” it said.

It is noted that sustainable data centers are designed to balance rapid digital growth with environmental responsibility, a pressing need as they already consume about 1.5 percent of global electricity and could more than double this share by 2030.

To track their footprint, the industry uses three key performance indicators (KPIs) : (i) power usage effectiveness (PUE) – energy efficiency, (ii) water usage effectiveness (WUE) – water consumed per information technology (IT) load, and (iii) carbon usage effectiveness (CUE) – emissions intensity per computing load.

Global efforts to curb DCs’ rising energy footprint have progressed from voluntary guidance to binding rules.

The European Union (EU) pioneered with its voluntary Data Center Code of Conduct (2008), later progressed to the Energy Efficiency Directive (2023), which mandates energy reporting for data centers >500kW IT load.

Similarly, Singapore began with SS 564 in 2010 as a voluntary data center energy management standard, but in 2025 announced a binding efficiency framework requiring larger operators to report and comply with performance metrics.

Malaysia has emerged as a key regional data center hub, particularly after Singapore’s moratorium on new developments in 2019.

Since 2024, policymakers have layered in sustainability governance.

Ministry of Investment, Trade and Industry of Malaysia (MITI)’s Guidelines for Sustainable Development of data centers introduced in Dec 2024 tie compliance to incentive
schemes for new projects, leaving many existing data centers outside its scope.

To close this gap, the binding Energy Efficiency and Conservation Act (EECA) took effect on Jan 1, 2025, making efficiency obligations mandatory for all large energy users, including data centers.

Meanwhile, Malaysian Communication and Multimedia Commission (MCMC), as regulator of the digital ecosystem, issued its Technical Code for Green DCs (first in 2015, updated 2024), a voluntary but widely adopted operational standard.

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