For decades, companies deciding where to build factories or expand supply chains in Southeast Asia have weighed familiar considerations: labour, energy, logistics, infrastructure and access to markets.
Water, once largely taken for granted, is becoming a factor that can shape where companies invest, how much they can produce and how resilient their supply chains will be.
The issue is not simply whether a factory can obtain enough water today. Companies depend on watersheds, utilities, transport networks, ecosystems and communities whose own access to water can determine whether businesses are able to operate reliably years from now.
“Businesses in Southeast Asia need to move beyond viewing water solely as a scarcity or climate risk issue and recognise it as a fundamental economic input that underpins operations, supply chains and long-term growth,” said Melissa Moi, Head of Sustainable Business in the Group Corporate Sustainability Office at United Overseas Bank (UOB).
“The challenge is not simply about having enough water. It is about understanding how water availability, quality and governance shape the resilience of entire landscapes and value chains.”
That distinction is becoming more important as Southeast Asia industrialises while simultaneously facing increasingly unpredictable water conditions.
The Asian Development Bank’s latest regional water assessment warns that progress on water security across Asia and the Pacific is being threatened by environmental degradation, intensifying water-related hazards and insufficient investment in infrastructure. It estimates the region will require about US$4 trillion in water, sanitation and hygiene investment through 2040.
The challenge for companies is that their exposure frequently extends well beyond the water passing through their own pipes.
Beyond the factory gate
A business may reduce its water consumption, install efficient equipment and recycle wastewater, yet remain vulnerable if the reservoir supplying its industrial estate falls, a flood closes the road connecting it to a port or upstream pollution raises treatment costs.
Moi said companies increasingly need to consider water through both a landscape and value-chain perspective.
Flooding, for instance, can disrupt transport and logistics even when a factory itself remains undamaged. Scarcity can pit industrial users against cities, agriculture and communities drawing from the same basin. Degraded forests or poorly managed agricultural land upstream can meanwhile affect the quality and reliability of water available downstream.
This means water risk can take three different forms: too much, too little and too dirty.
Floods in Vietnam. Flooding can disrupt transport and logistics even when a factory itself remains undamaged. Image: Lâm Trần/Pexels
For Graeme Riddell, Managing Director and Asia Pacific climate and Sustainability Risk Consulting Leader at Marsh Risk, this makes water much more than an operational issue.
“When it comes to water, it’s not an operational issue but a key revenue risk touching on supply chain, production capacity and reputational challenges,” he said.
Much of that exposure, he added, can run through suppliers, energy inputs and logistics rather than direct water use at an individual facility.
That makes national-level assessments of water stress insufficient in many cases.
“To grapple with this – we need to think about water catchments and basins and not a one-size-fits-all country level assessments,” Riddell said.
Facilities operating in different river basins within the same country can face sharply different conditions, depending on rainfall, infrastructure, allocation rules and competition among users.
For companies, that increasingly means asking not simply whether a country has adequate water resources, but whether the specific catchment supporting a plant, supplier or transport network can continue meeting demand.
The consequences can extend beyond physical disruption. Where businesses compete with households or farmers for constrained supplies, water use can also become a political and social issue.
Riddell said engagement with utilities, regulators and other users within the same catchment is therefore becoming increasingly important.
“The cost of inaction is not just operational disruption but loss of social license and regulatory pushback in water-stressed regions,” he said.
Those pressures are unlikely to ease simply because annual rainfall remains high.
Agriculture continues to account for the largest share of water withdrawals across much of Asia, while cities, industries and digital infrastructure are adding new sources of demand. The UN Food and Agriculture Organization warned this year that competition among agriculture, urban areas and industry is intensifying across Asia-Pacific as climate change makes rainfall more variable and droughts and floods more severe.
Riddell argues that rising demand itself may prove one of the biggest short- to medium-term pressures as population growth, urbanisation and digital infrastructure increase competition for the same supplies.
At the same time, the current El Niño is providing a reminder of how quickly climatic conditions can amplify existing vulnerabilities. The World Meteorological Organization said on 3 September that El Niño is firmly established and expected to intensify further, with an almost 100 per cent likelihood of persisting through February 2027.
Agriculture continues to account for the largest share of water withdrawals across much of Asia. Image: Etienne Girardet/Unsplash
The case in Thailand
Nowhere is the link between water security and industrial competitiveness more visible than in Thailand, where the government’s push into higher-value industries such as semiconductors, electronics, printed circuit boards and EV batteries is creating new sources of water demand in an economy already exposed to recurring floods and droughts.
Historically, water risk in Thailand has been most material for sectors such as agriculture, food processing, petrochemicals, chemicals, utilities and industrial manufacturing, said Chow Wong Yuen, Chief Sustainability Officer at UOB Thailand.
But the country’s drive to develop the so-called S-Curve industries – including data centres, electronics, semiconductors, printed circuit boards and EV battery manufacturing – is changing the profile of industrial water demand.
“Water security is becoming increasingly material for many of our corporate clients,” Wong said.
These newer industries do not necessarily consume the largest volumes of water in absolute terms, but many depend on highly reliable and predictable supplies.
That makes water increasingly relevant to investment decisions that were once dominated by the availability of land, power, labour and logistics.
Chow said companies are starting to incorporate water availability, wastewater management and climate resilience into those assessments, particularly in the Eastern Economic Corridor (EEC), Thailand’s flagship industrial zone spanning Chachoengsao, Chonburi and Rayong.
The OECD has warned that rising demand is already creating tension with limited water availability in the EEC. Citing assessments by Thai authorities, it projects industrial water demand in the corridor to grow by 43 per cent by 2037, while Chonburi and Rayong could each see overall demand rise by at least 50 per cent.
The challenge is also becoming more climate-sensitive. The World Bank says floods, heat, water shortages and coastal erosion could reduce Thailand’s GDP by 7–14 per cent by 2050 without stronger adaptation measures.
For industrial developers, reliable water infrastructure is therefore becoming part of the investment proposition itself.
Chao Phraya River, Bangkok, Thailand. Historically, water risk in Thailand has been most material for sectors such as agriculture, food processing, petrochemicals, chemicals, utilities and industrial manufacturing. Image: Dale Mohagan/Pexel
Chow pointed to industrial-estate operator WHA, which has invested in reservoirs, reclaimed-water systems and flood-resilient infrastructure to support manufacturers in the EEC. WHA said its water reclamation projects convert treated wastewater into industrial-grade water, reducing withdrawals from natural sources and lowering exposure to disputes with nearby communities.
This is also changing what companies expect from new industrial facilities. Chow said businesses are placing greater emphasis on build-to-suit factories or industrial parks that incorporate smart metering, leak detection and efficient cooling systems, alongside wastewater recycling, water storage, alternative supplies and flood protection.
For existing factories, these investments can potentially be financed through green loans or sustainability-linked loans. Yet water-specific financing remains relatively nascent in Thailand compared with energy, he added.
The barriers are often economic rather than technological. Water remains relatively inexpensive in Thailand, weakening the financial case for efficiency projects, while the benefits of resilience are difficult to quantify because they often come in the form of avoided future losses.
Chow said this strengthens the case for shared, cluster-level solutions in industrial zones such as the EEC, including wastewater treatment, reclaimed-water networks and storage infrastructure.
“Water is rapidly becoming a strategic production input rather than a utility cost,” he said. “Companies that can demonstrate water resilience are likely to improve both operational reliability and attractiveness to global investors and customers.”
Agriculture is a major water user, but farming practices can also affect erosion, pollution, groundwater recharge and water quality for businesses and communities downstream. Hoa Bac Dam, Hoa Bac, Hoa Vang, Da Nang, Vietnam. Image: Van Space/Unsplash
When water becomes an input to growth
For sectors that require large and dependable quantities of high-quality water, these pressures are turning water security into a question of competitiveness.
Moi points particularly to agriculture, manufacturing, industrial parks, semiconductor production and data centres.
In these sectors, water availability can influence not only operational continuity but whether new capacity can be developed at all.
Semiconductors illustrate the challenge particularly clearly. Chip manufacturing requires large volumes of highly purified water, placing significant demands on both supply and treatment infrastructure.
For water-intensive industries such as semiconductors, securing supply therefore means using existing resources more efficiently. Singapore has moved in that direction by making water recycling part of its industrial resilience strategy.
From 2024, new qualifying wafer fabrication plants have been required to achieve at least a 50 per cent water recycling rate, while certain electronics and biomedical facilities must recycle specified wastewater streams. PUB, the national water agency, said recycling can lower water bills while improving companies’ long-term competitiveness and resource resilience.
By December 2025, the average recycling rate among Singapore’s wafer fabrication plants stood at 46 per cent, according to PUB.
The example points to a broader change in how businesses might approach water: not simply as an environmental compliance cost, but as something that can improve productivity and reduce exposure to future constraints.
“The greatest opportunity for businesses is not simply using less water, but creating more economic value from every unit of water consumed while strengthening the resilience of the systems, infrastructure and watersheds on which growth depends,” Moi said.
That can involve conventional investments such as wastewater treatment, recycling systems and more efficient distribution networks, but also flood protection, drought preparedness and interventions upstream.
Agriculture is particularly important because it sits on both sides of the equation. It is a major water user, but farming practices can also affect erosion, pollution, groundwater recharge and water quality for businesses and communities downstream.
In Indonesia, for example, Danone Ecosystem and partners have worked with local governments and communities in Bali’s Ayung watershed on regenerative agroforestry and groundwater recharge initiatives. The programme uses a payment-for-ecosystem-services model intended to improve infiltration and watershed conditions while providing benefits to local farmers.
Such projects illustrate why corporate water management increasingly extends outside company-owned facilities.
The investment opportunity – and financing problem
For Southeast Asia, improving water security will require substantial investment in infrastructure, industrial solutions and natural systems.
Moi identifies upgrading treatment plants and distribution networks; investing in industrial recycling, reuse and cooling systems; and financing upstream watershed protection as three broad opportunities that can improve water quality and reduce drought and flood exposure in the region.
Capital is already being mobilised in some markets.
Singapore’s PUB, for example, raised S$800 million (US$631 million) through its inaugural green bond in 2022, with proceeds directed towards eligible projects supporting water security and sustainability. Its updated green financing framework covers sustainable water and wastewater management alongside other environmental investments.
For Southeast Asia, improving water security will require substantial investment in infrastructure, industrial solutions and natural systems. Image: Sergio Sala/Unsplash
But the harder problem, Moi said, is often not technology.
Water treatment, recycling and efficiency technologies are already mature in many cases. The challenge is creating projects with sufficiently clear revenue models to attract capital.
Water can remain underpriced, ownership of infrastructure may be fragmented and the benefits of improving a watershed can be distributed across businesses, governments and communities rather than accruing neatly to the investor paying for it.
That creates a mismatch between who incurs the cost and who receives the benefit.
Possible solutions include industrial users jointly financing shared recycling infrastructure, service models under which investors recover their costs through long-term payments, and watershed financing mechanisms in which downstream beneficiaries help pay for upstream restoration.
For banks, Moi sees a role beyond simply supplying loans.
Financial institutions can help develop common standards and measurements, bring businesses, governments and utilities together, and structure projects whose risks and benefits are shared among several parties, according to Moi.
They can also begin incorporating water dependencies more systematically into financing decisions.
Water risk is still frequently considered only after businesses have already made long-lived investment decisions.
Riddell said companies should instead incorporate it when choosing where to locate facilities, deciding which production lines to expand and setting design standards for infrastructure.
“Water-risk management becomes strategic only when it feeds site selection for new facilities, product mix decisions, and building design choices,” he said. “These decisions shape decades of exposure.”
He argued that companies should also map dependencies outside their direct control – whether a road to a port, a utility, a supplier or a shared water source – because disruption to any one of those can stop production even if the company’s own facility remains resilient.
Through a more collective model of water management, companies can reduce leakage, recycle wastewater and improve their own operations, although they cannot independently control rainfall, reservoirs, public infrastructure or how other users behave within a watershed.
“No company solves water alone; the businesses that thrive are those treating water stewardship as a prerequisite for local social license and long-term competitive access,” Riddell said.
For Southeast Asia’s businesses, this may ultimately be the most significant change in thinking.
Water will not replace labour, energy or market access as determinants of investment. But for water-intensive sectors, its availability, quality and resilience are increasingly likely to influence where facilities can expand, whether supply chains remain reliable and how expensive it becomes to operate.
As Moi put it, water stewardship is moving closer to the centre of business strategy.
“While water is unlikely to be the sole determinant of investment decisions, it will increasingly influence how businesses and investors assess resilience, competitiveness and long-term value creation.”
