KUALA LUMPUR (Nov 19): Malaysia’s palm oil giants, long-blamed for razing rainforests, fueling toxic haze and driving orangutans to the brink of extinction, are recasting themselves as unlikely champions in a different, potentially greener race: the quest to lure the world’s artificial intelligence (AI) data centres to the Southeast Asian country.

Palm oil companies are earmarking some of the vast tracts of land they own for industrial parks studded with data centres and solar panels, the latter meant to feed the insatiable energy appetites of the former. The logic is simple: data centres are power and land hogs. By 2035, they could demand at least five gigawatts of electricity in Malaysia — almost 20% of the country’s current generation capacity and roughly enough to power a major city like Miami. Malaysia also needs space to house server farms, and palm oil giants control more land than any other private entity in the country.

The country has been at the heart of a regional data centre boom. Last year, it was the fastest-growing data centre market in the Asia-Pacific region and roughly 40% of all planned capacity in Southeast Asia is now slated for Malaysia, according to industry consultant DC Byte. Over the past four years, US$34 billion (RM141.18 billion) in data centre investments has poured into the country — Alphabet Inc’s Google committed US$2 billion, Microsoft Corp announced a US$2.2 billion investment and Amazon.com Inc is spending US$6.2 billion, to name a few. The government aims for 81 data centres by 2035.

The rush is partly a spillover from Singapore, where a years-long moratorium on new centres forced operators to look north. Johor, just across the causeway, is now a hive of construction cranes and server farms — including for firms such as Singapore Telecommunications Ltd, Nvidia Corp and ByteDance Ltd. But delivering on government promises of renewable power is proving harder. 

The strains are already being felt in Malaysia’s data centre capital. Sedenak Tech Park, one of Johor’s flagship sites, is telling potential tenants they’ll need to wait until the fourth quarter of 2026 for promised water and power hookups under its second-phase expansion, according to DC Byte. The vacancy rate in Johor’s live facilities is just 1.1%, according to real estate consultant Knight Frank. Despite its rapid growth, the market is nowhere near saturation, with six gigawatts of capacity expected to be built out over time, said Knight Frank’s head of data centres for Asia-Pacific, Fred Fitzalan Howard. 

That potential bottleneck has incentivised palm oil majors such as SD Guthrie Bhd (KL:SDG) to pitch themselves as both landowners and green-power suppliers.

“This is where we can play a crucial, significant role in this ecosystem,” said Mohamad Helmy Othman Basha, group managing director of the US$8.9 billion palm oil producer SD Guthrie. It’s the world’s largest palm oil planter by acreage, with more than 340,000 hectares under its control in Malaysia.

SD Guthrie is pivoting to solar farms and industrial parks, betting that tech giants hungry for server space will prefer sites with ready access to renewable energy. The company has reserved 10,000 hectares for such projects over the next decade, starting with clearing old rubber estates and low-yielding palm plots in areas near data centre and semiconductor investment hubs.

The company’s calculation is based on this: one megawatt of solar requires about 1.5 hectares. Helmy said SD Guthrie wants one gigawatt in operation within three years, enough to power up to 10 hyperscale data centres used for AI computing. The new business is expected to make up about a third of its profits by the end of the decade.

“Every inch of our land going forward will generate income,” he said in an interview with Bloomberg News in Malaysia’s Selangor state. 

Rivals are following suit. Kuala Lumpur Kepong Bhd (KL:KLK), Malaysia’s second-biggest palm planter, recently launched a 1,500-acre KLK TechPark, with BYD, China’s electric car giant, as an anchor tenant. A second park, nearly twice that size, is planned for Johor. The firm confirmed it had received interest from data centre players to set up complexes in the parks, which will be considered based on how much value they can create.

IOI Corporation Bhd (KL:IOICORP), another palm behemoth, has allocated plantation land in Johor for solar projects, although the company said there are no concrete deals yet. “Being a relatively large landowner, we are aiming to establish solar plants of a certain size,” or at least 300 megawatts, IOI chief executive officer Lee Yeow Chor said during a briefing in early November. The goal is to use areas where palm oil trees are old or need replanting. 

KLK controls about 355,000 hectares, mainly across Malaysia and Indonesia. IOI has nearly 200,000. Together with Guthrie, the trio dominate Malaysia’s land bank.

“It’s a unique opportunity for palm oil plantations in Malaysia, given the large tracts of land that present scalability for data centre developments,” DC Byte lead analyst Vivian Wong said.  

It may also be more profitable for the palm oil companies. A Maybank report last year estimated profits from large-scale solar operations to be more than 50 times the average profit from palm oil cultivation. There are already some small success stories in the industry, such as Gopeng Bhd (KL:GOPENG), a small-time planter that swung from a loss to giving its biggest shareholder return in three years by venturing into renewable energy.

But the new business isn’t without risk. Palm oil firms could end up with acres of unused data centers. “The risk is building industrial parks in the wrong place, as data centres are highly location-specific,” said Fitzalan Howard, who noted major sites need up to 50 acres — making location errors costly.

Tropical heat adds another challenge: data centres require substantial cooling, meaning facilities in Malaysia will consume roughly 25% more energy than one in a city like London, Fitzalan Howard said.

Which raises the question: Can companies that spent decades as climate pariahs reinvent themselves as green-energy saviours?

Unlikely, said Ivy Ng, head of Malaysia research and agribusiness at CIMB Securities. Yes, it may reduce their carbon footprint and improve their environmental, social and governance profiles, but palm oil will remain core to their business, she said.

Once a colonial-era crop, palm oil has grown into a global consumer staple found in nearly half of all supermarket products. To keep up with rising demand, palm companies turned to deforestation, particularly in Malaysia and Indonesia, where vast stretches of tropical rainforest have been cleared to make way for plantations. In the Malaysian part of Borneo, as much as 60% of the rainforest was destroyed between 1973 and 2015, leading to habitat loss and emissions. Producers now face mounting pressure to adopt sustainable practices.

“It’s a move in the right direction,” Ng said of palm companies’ push into green energy. But “it’s too small to make a very big difference to the company’s overall future prospects.”

Environmental groups are skeptical, calling solar ventures a bid to monetise ageing estates, rather than reform core practices.

“While these ventures may help improve a company’s ESG (environmental, social and governance) standing on paper, true credibility and sustainability depend on addressing core issues within their palm oil operations — such as deforestation, peatland degradation, labour rights, and supply chain transparency,” Greenpeace Malaysia said. “Simply adding ‘green projects’ on the side is no longer enough, as investors and markets are increasingly discerning and can distinguish genuine transition efforts from greenwashing.”

As for SD Guthrie’s Helmy, who will be stepping down from his position at the end of this year, he’s still hopeful that this new venture will transform the perception of palm oil, which has been targeted by boycotts in the West. 

“Palm oil has been demonised for the longest time,” Helmy said. “Now it can play a role in renewable energy.” 

Uploaded by Liza Shireen Koshy