Data center legitimacy in an era of environmental, climate, and social scrutiny

The AI industry is booming, and the race is on to rapidly scale digital infrastructure.¹ Financing for data center transactions in 2026 has risen by around 70% since 2025 (to USD58 billion), with around 850 data centers under construction globally.²

However, the hype around data centers has been punctuated by political and community resistance, which is manifesting in activism, lawsuits, and moratoriums targeting data center projects and policies. Much of the backlash revolves around sustainability-related concerns that range from resource intensity and wastage to the impact of data centers on energy prices, land use, human rights and the climate transition. Sustainability objectives are increasingly influencing countries’ digital economy strategies and regulations—alongside national security and data sovereignty priorities. 

Here we provide a snapshot of key environmental and human rights concerns that threaten to erode the social license to operate data centers. In particular, we explore three areas where those concerns impact how hyperscalers and other data center operators manage risks, create competitive advantage and build legitimacy. 

Sustainability concerns risk eroding the social license to operate data centers

Stark findings on data centers’ water, carbon and land footprints are gaining attention, as are concerns over human rights impacts along AI supply chains, of which data centers form an important part. 

Recent research by the United Nations University Institute for Water, Environment and Health presented staggering statistics: 

1. if treated as a nation, global data centers would have been the world’s 11th largest electricity consumer in 2025, behind France and ahead of Saudi Arabia
2. by 2030, global data centers’ water footprint is projected to equal the minimum annual domestic water needs of all 1.3 billion residents in Sub-Saharan Africa
3. by 2030, e-waste generated annually by AI infrastructure, including data centers, could be equivalent to discarding nearly 250 Eiffel Towers every year.

Adverse human rights impacts that may be linked to data center value chains include: 

1. labor rights issues in mining supply chains, not least in conflict affected and high risk areas from which critical minerals are derived for the construction and ongoing operation of data centers
2. the displacement and/or disenfranchisement of communities where data centers are built, particularly where local community and other stakeholder engagement is lacking and
3. the infringement of the right to a healthy environment, in view of rising temperatures, noise, and air pollution, water scarcity and other localized repercussions.

Inevitably, calls for governmental interventions that address data centers’ environmental and social impacts have persisted and are growing. 

Regulations: adding a sustainability slant

Internationally endorsed recommendations have declared that all actors in the AI value chain, including hyperscalers and other data center operators, have responsibility for AI’s environmental and social impacts.³ Specifically, value chain actors should ensure that human rights and fundamental freedoms are “respected, protected and promoted throughout the life cycle of AI systems,” and reduce the direct and indirect environmental impact of AI systems and data infrastructure. Accordingly, governments are deploying legal and policy levers to foster more sustainable practices in the data center sector.

Environmental and climate

• Renewable power requirements: More countries are expected to require that data centers be powered by a minimum (sometimes incremental) share of renewable or green energy. Such requirements have already surfaced in several jurisdictions’ laws and/or proposal evaluation criteria, including Germany, Ireland, Japan and Singapore.
• Bring-your-own power requirements and conditional grid access: Grid constraints are a major sticking point for both local communities and data center operators. In response, some countries require or are considering introducing requirements for data centers to self-build or derive energy from sources separate from the electric grid (e.g., Ireland, the UK and the U.S.) Furthermore, to shield local communities from costs associated with data center operations, authorities are imposing conditions for grid interconnections (e.g., requirements to fund infrastructure upgrades and other financial commitments). For more detail read our article on powering data centers.
• Transparency requirements for energy and environmental metrics:  Such requirements span energy efficiency, water use and withdrawal, waste heat utilization, renewable energy consumption, and reuse of equipment.  Examples are found in the EU Energy Efficiency Directive (EED), Germany’s Energy Efficiency Act, China’s Eastern Data, Western Computing initiative and Singapore’s Mandatory Water Efficiency Management Practices. There are growing calls for reporting requirements similar to the EED in the UK and elsewhere, although the adequacy of such disclosures in themselves have been called into question. Regulatory requirements vary, for example, as to which data centers are captured, and whether reported information is made publicly available and if so, whether in aggregated form. Divergent definitions also mean that efficiency metrics across jurisdictions are usually not directly comparable.
• Minimum sustainability performance standards and rating schemes for data centers: Sustainability certifications are becoming increasingly important for marketability and investability. Standards and schemes concerning resource consumption and efficiency have been developed in some countries, and others are following. Examples include Ireland’s Connection Policy for Data Centers, Japan’s Energy Conservation Act, Singapore’s Green Mark for Data Centers, the National Australian Built Environment Rating System, and upcoming proposals in the EU’s Data Center Efficiency Package, which is intended to incentivize the roll-out of energy efficient data centers.
• Emissions monitoring and disclosure requirements: Data center operators will increasingly be subject to scope 1, 2 and 3 reporting requirements, as well as requests to disclose emissions information to value chain actors (whether downstream or upstream of data centers). This is as more entities will come under obligation or pressure to track their scope 3 emissions and manage climate-related impacts arising from purchased services and financed emissions (for instance, through the International Sustainability Standards Board standards and their locally adapted versions globally).
• Sustainable finance taxonomies: Data processing, hosting and related activities are already recognized for alignment with certain taxonomies if the prescribed technical criteria are met.
• Circular economy measures targeting heat waste and e-waste: Laws and policies that incentivize circular economy practices in the data center sector are on the rise, such as requirements to create waste management plans; encourage component tracing or recycling; report on heat loss; and create plans to capture and use excess heat (in connection with heat supply agreements for industrial or residential developments).

Human rights

• Supply chain due diligence laws: As supply chain due diligence laws proliferate across jurisdictions, data center operators will become subject to growing requirements to identify, prevent, mitigate, and remediate adverse impacts on human rights in their operations, supply chains and other business relationships. They can expect to come under greater scrutiny for their supply chains’ impacts, including through growing pressure to publish human rights impact assessments and establish accountability mechanisms. Mandatory regimes aimed at minimizing and addressing such adverse impacts on people, planet and society include the EU Corporate Sustainability Due Diligence Directive, EU Conflict Minerals Regulation, Norway’s Transparency Act, the U.S. Uyghur Forced Labor Prevention Act, Indonesia’s forced labor import ban and modern slavery laws in the UK and elsewhere.
• Emerging regulatory guidance on data centers’ human rights impacts: Governments are beginning to revisit the sufficiency of their policies and legislation in relation to minimizing data centers’ human rights impacts. For example, the Australian government recently set out expectations that data center operators should build and maintain their social license through open and constructive engagement with local communities; and South Africa is looking to develop policy guidance on human rights impacts associated with data centers as well as recommendations for rights-based governance and due diligence. Hence, more regulatory measures and guidance can be expected which may promote deeper visibility of supply chains.
• Elevated expectations and contractual obligations across the AI value chain: Data center operators may increasingly experience knock-on impacts from data center end users and their customers, and from financiers, which are under growing pressure to assess the broader societal implications of their AI supply chains. While much focus around AI-related human rights impacts has been placed on responsible deployment of AI (e.g. children’s safety, privacy, equality, non-discrimination, freedom of expression and freedom of thought), scrutiny of upstream impacts will continue to grow. Obligations in connection with risk-based human rights due diligence will likely be cascaded to data center operators through contractual undertakings, supplier codes of conduct and onboarding conditions/qualification criteria in procurement processes.
• Recognizing the business case for effective human rights risk management:
  • While it may be easy for data center operators to overlook the benefits of maintaining robust governance for human rights risk management, the OECD reiterated that enterprises with reputations for responsible practices can expect to “more readily access capital markets, attract premium business relationships, and navigate regulatory landscapes with greater ease.”
  • Global recognition that “people-related impacts, dependencies, risks and opportunities affect performance and long-term value creation” is also reflected in the Taskforce on Inequality and Social-Related Financial Disclosures framework which is being developed for consultations and is set to be finalized by the end of 2027. 

Project award assessments: Integrating sustainability criteria

Across the world, communities, campaigners, and others have voiced (or fanned) objections to data center projects, including in Australia, Chile, India, Ireland, Japan, South Africa, the UK, the EU, and the U.S. Often, these objections and moratoriums are accompanied by demands for proper project impact assessments or for the creation of stringent environmental and social criteria that projects must meet.

The ability to flexibly adapt to meet or exceed new and evolving “best-in-class” sustainability criteria (e.g., in respect of energy and water efficiency) will increasingly have a positive effect on a data center operator’s competitive position in a crowded market, including impacting how financiers perceive a project’s investability.

Land requirements, the limited local benefits of establishing data centers, electricity affordability issues, environmental concerns regarding high resource demands, and the social impacts of AI are among the reasons why local communities may oppose data center projects. Hence, beyond technical standards, data center project award assessment processes increasingly involve consideration for how projects align with, and promote the interests of, host countries and communities. 

This brings into focus the importance of genuine engagement with stakeholders and consultation with local communities and governments. Here, operators may be able to strengthen their social license to operate by providing tangible benefits (e.g., arranging for local communities/businesses to use power capacity and data center services) and delivering on meaningful economic commitments beyond data center investments. 

Stakeholder engagement: demand for credible sustainability narratives

Data center operators can expect heightened scrutiny from shareholders, investors, financiers and data center end users on matters such as environmental and human rights impact assessments, sustainability risk management strategies, and proof of compliance with regulations and guidance. 

Notably, concerns have already surfaced—via shareholder proposals, litigation, public advocacy and closed-door engagements—over how countries, data center operators, and their utility providers can meet their climate-related commitments. Unlike most other sectors which are expected to decarbonize over the coming years, emissions will continue growing in the data center sector. A sustainability-informed business strategy, and the ability to communicate that strategy, is therefore key for data center operators to build legitimacy. 

Key steps that data center operators should consider:

• Adopting defensible methodologies for managing sustainability risks: There is intense scrutiny of methodologies that purport to ensure the sustainable development of data centers. Operators should strengthen their environmental and human rights monitoring and impact assessment methodologies, particularly as related concerns surge across the lifecycle of AI systems. For example, recent precedents show that challenges may be brought against data center operators for misstating carbon emission figures in their regulatory submissions, and at policymakers for grid connection requirements that fail to consider significant aspects of data centers’ water and electricity consumption.
• Enhance the credibility of climate transition plans: The tension between data center expansion and the climate transition is increasingly woven into public discourse, not least because many electrical grids rely on fossil fuels, and because operators are continuing to seek gas connections. Worries about fossil fuel lock-in and missed climate targets are being stoked, with shareholders and other interested parties raising questions about how data center expansion aligns with decarbonization strategies at corporate, national and global levels. Operators should build concrete implementation actions into their climate transition plans, backed by financial projections and clear rationales for using carbon credits, which address tensions between data center expansion and sustainability concerns. Environmental and social objectives may also be reflected in policies, agreements and project documentation with other entities in the value chain, refurbishing and recycling partners, local communities and other relevant parties.
• Consider making proactive disclosures: In the absence of mandatory transition plan (or other specific) disclosure requirements, data center operators should consider where greater transparency would be beneficial for bankability, investability, and reputation-enhancement. Data center sustainability disclosures that are in high/growing demand, from financiers to NGOs, include energy efficiency indicators, carbon emissions and embodied carbon, use of renewable energy, water consumption indicators, climate resilience and responsible sourcing. By catering to the informational needs of key stakeholders, operators can demonstrate their ability to meet evolving legal requirements and their ambition to operate sustainably.
• Embedding sustainable features in systems and processes: The investability of data center projects will increasingly be enhanced through seeking to ensure that their energy sources, processes, equipment and infrastructure are not merely climate-positive in isolation, but sustainable on a broader system level that balances tensions between carbon intensity, water efficiency, land use, circularity and other aspects of sustainability. A case in point is how more efficient closed-loop cooling systems are becoming the norm in new data center projects, bearing in mind the need to appropriately address water consumption issues without undue trade-offs on electricity demand and other sustainability concerns. 

Legitimacy through sustainability strategy as a valuable differentiator

In view of shifting regulatory frameworks, project assessment criteria and stakeholder expectations, a credible sustainability strategy is increasingly a differentiator for data center developers and operators. Beyond the reputational benefits, legitimacy is essential given the ongoing polarization of the political environment and the negativity among some groups towards AI. 

Data center operators able to proactively manage legal and reputational risks can expect returns in various forms, such as: gaining priority in regulatory approvals and procurement processes, expanding access to finance, qualifying for subsidies and tax breaks and building greater social acceptance. 

Footnotes

1. AI workloads accounted for roughly 20% of total data centers’ electricity use in 2025 and are projected to grow to 40% by 2030 (United Nations University Institute for Water, Environment and Health).

2. Data center investors navigate geopolitical strife as deals boom (Financial Times, June 17, 2026).

3. Organisation for Economic Co-operation and Development (OECD) and United Nations Educational, Scientific and Cultural Organization (UNESCO).