Data Centres And Sustainability – Key US, EU And UK Investment Considerations

1. Surging demand for power-intensive digital infrastructure and artificial intelligence is driving private fund strategies and capital deployment into data centres across the US and the EU. The sector is in growth mode, but when assessing investment opportunities and hold periods, and negotiating contracts and pricing, sustainability-related regulatory, energy and environmental considerations are complex and material. Any assessment should focus specifically on data centre energy consumption, and the consequential increase in emissions of greenhouse gases (GHGs) and other pollutants against applicable legal frameworks and commitments regarding limiting such emissions and carbon footprint. Other important aspects are sustainability and environment-related present and future legal considerations for the infrastructure housing data centres and associated physical climate risks.

2. The range of potential conventional environmental risks impacting data centres is significant, and bespoke due diligence will be required in the context of M&A transactions. In addition to climate change and water usage, potential environmental considerations relevant to data centres relate to battery use and management, water consumption and discharges, fuel storage, electrical safety, air quality, industrial hygiene, emergency response, hazardous materials (including the use and management of per- and polyfluoroalkyl substances and fluorinated gases), and impacts to soil and groundwater. Communication and reporting around these considerations, both in mandated reports under chemical and hazard reporting laws, and in voluntary reporting, should also be assessed. These risks may also be addressed in lease agreements, data sharing agreements and disclosure agreements, including among developers, landowners, hyperscalers, and customers.

3. The US federal government is seeking to promote the buildout of data centres and satisfy the energy demands of artificial intelligence. This includes efforts to streamline the environmental permitting process associated with data centres and energy projects. For example, the National Environmental Policy Act (NEPA), a federal law that plays a central role in energy, infrastructure and other projects, continues to undergo changes due to a series of developments from all three branches of the federal government. In 2023, Congress passed the first substantive amendments to NEPA since the law was originally enacted in 1970. In January 2025, the White House Council on Environmental Quality (CEQ) formally rescinded its NEPA regulations. As a result, individual federal government agencies are now responsible for promulgating their own NEPA policies and procedures, and most agencies have pivoted to non-binding guidance rather than codified regulations. Additionally, the U.S. Supreme Court issued an opinion in May 2025 calling for a course correction with regard to how courts adjudicate NEPA suits, and emphasized that NEPA is purely a procedural statute that does not dictate substantive agency determinations. Despite these changes, the federal government is working to further streamline the environmental permitting process for energy, infrastructure and other projects. Congress is continuing to discuss additional legislation to streamline the environmental permitting process for data centres and energy projects. The federal Environmental Protection Agency (EPA) released a revised interpretation of regulatory requirements for Clean Air Act construction permitting in September 2025 that allows for idled facilities like power plants to be brought back online without undergoing the type of extensive review of air emissions that EPA had previously required. EPA indicated that this change was needed to speed construction of both new data centres and power plants that supply data centres with electricity.

4. Existing EU regulations are evolving to specifically address concerns about data centre energy consumption. In March 2024, pursuant to the EU Energy Efficiency Directive (EED), the European Commission published a new delegated regulation for establishing an EU-wide scheme to rate the sustainability of EU data centres. It requires data centre operators to report energy performance KPIs to a specific European database on an annual basis. Other relevant regulations and standards relate to data centre classification under theEU Taxonomy Regulation and energy reporting under the EU AI Act and the Ecodesign Regulation (in this context, for the energy consumption and operating temperature of servers and data storage products), as well as the Energy Performance of Buildings Directive, which is seeking to decarbonise the EU new and existing building stock by 2050. Broader relevant diligence and supply chain related regulations include the pending EU Corporate Sustainability Due Diligence Directive (CSDDD) (see below), the EU Batteries Regulation and the EU Deforestation Regulation. The scope of these regulatory requirements requires specific consideration in order to manage short and medium term compliance.

5. Horizon scanning across relevant jurisdictions for pending legal and regulatory developments is also important, in order to ensure that both fund managers and investors have visibility of future requirements which will impact compliance costs and operations. For example, in 2026, the EU is expected to publish a new strategic roadmap for digitalisation and artificial intelligence in the energy sector and a new Data Centre Energy Efficiency Package, which will build on the EED and is expected to focus on energy efficiency and metrics, with the potential for a ratings system. More broadly, certain data centre owners and operators will fall within the scope of the pending EU Corporate Sustainability Reporting Directive and the CSDDD (both of which remain subject to ongoing negotiation within the EU legislative system), which will impose significant requirements on sustainability reporting and supply chain due diligence respectively. As for point 4 above, bespoke horizon scanning for the relevant host jurisdictions is critical. Potential investors and other stakeholders might consider implementing a system to map existing obligations, prepare for future requirements, as well as monitor potentially relevant court decisions.

6. Data centres have always been regulated in the UK, although currently are within the scope of broader legislation rather than specific laws aimed directly at them. Examples of relevant regulation include the Energy Saving Opportunities Scheme Regulations 2014 under which UK organisations, including data centre businesses that fall within the applicability criteria must conduct comprehensive energy audits every four years to assess energy consumption and identify energy-saving opportunities; and the Energy Performance of Buildings (England & Wales) Regulations 2012, which set standards for energy efficiency and performance. In addition, the Energy Effciency (Private Rented Property) (England and Wales) Regulations 2015 require all commercial properties to maintain a minimum Energy Performance Certificate rating, currently set to an "E", in order to avoid the imposition of civil penalties. In September 2024, data centres became designated as UK Critical National Infrastructure, with planning and regulatory implications and in August 2025, the UK Government published a new research paper "Data Centres: Planning Policy, Sustainability and Resilience" which provides a comprehensive overview of the data centre sector regulatory framework in the UK, including in terms of planning and permissions, energy consumption and water. Separate laws and regulations (which are also evolving) cover the reporting of sustainability-related information for UK companies, including on energy consumption and GHG emissions.

7. Beyond transactional diligence and regulatory horizon scanning, practical risk mitigation options might be relevant to sustainability issues likely to arise in data centre transactions: for example, using renewable energy and reducing GHG emissions, offsetting emissions, improving energy and water efficiency, implementing circular economy principles and factoring biodiversity or nature-based considerations. Data centres also face significant risks from climate change, including extreme weather events, power disruptions, and (as outlined in this Briefing) regulatory changes. Adopting sustainable practices not only reduces these risks but also helps create a competitive advantage in the market. The Weil team can assist companies in devising due diligence strategies and value creation frameworks for managing: (i) energy and environmental-related risks and opportunities in the context of data centre transactions; (ii) social risks, such as those relating to the impact of a data centre on people and the relevant community; and (iii) governance risks relating to companies' frameworks for managing ESG issues.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.