Introduction

Data centres have emerged as a defining infrastructure investment of the decade, with the rapid deployment of AI driving a global expansion in capacity. McKinsey estimates that approximately US$6.7 trillion must be invested in data centres between 2025 and 2030 to meet the growing demand for compute power. However, this scale of development is attracting increased scrutiny from regulators, investors, and communities regarding environmental and social implications. While many issues are familiar to practitioners, the speed of deployment and the interconnected nature of the AI value chain create unique challenges for traditional due diligence approaches.

Challenge #1: social issues are increasingly recognised as an important blind spot in data centre due diligence

Due diligence within financial institutions is often dominated by environmental concerns such as energy demand, water use, and greenhouse gas emissions. While these are critical, impacts rooted in social and human rights issues are frequently overlooked. Communities are particularly concerned about land acquisition, noise, local socio-economic impacts (such as housing and electricity price increases), and access to natural resources. These social issues often underpin community opposition and can lead to significant project delays, litigation, and reputational harm. The quality and timing of community engagement are decisive in determining whether these impacts remain manageable or escalate into financially material disputes.

What banks can do

Banks should seek to understand where social risks arise along the entire data centre value chain, including upstream mineral supply chains for components (such as cobalt and nickel) and downstream impacts related to workforce displacement. An integrated climate-nature-people approach can help practitioners identify risks at their roots, as environmental impacts often have direct consequences for livelihoods and health. Financial institutions should also apply transferable learnings from other sectors, such as mining and renewable energy, where analogous social and human rights issues have been successfully addressed.

Challenge #2: community opposition has become a financial risk for data centres

Community opposition is growing rapidly and increasingly influences project viability. In the United States, Data Center Watch has identified 142 organised advocacy groups across 24 states opposing new developments. The organisation estimates that community opposition contributed to US$156 billion in projects being cancelled or delayed during 2025. This trend is global, with community opposition recorded in Chile, Uruguay, the United Kingdom, the Netherlands, Japan, and Australia. Concerns related to land acquisition, cumulative impacts, and the distribution of project benefits often lead to disputes that result in material financial consequences for proponents.

What banks can do

Financial institutions should build a business case for meaningful engagement, helping clients understand that early and inclusive stakeholder consultation can reduce operational friction and support permitting. Banks must recognise the diversity of community concerns and assess the quality of client engagement to ensure it is transparent and reaches vulnerable groups. Crucially, practitioners should look for evidence that stakeholder engagement has meaningfully influenced project decisions, such as changes to siting, design, or the creation of community benefit agreements.

Challenge #3: data centre developers and project sponsors are less familiar with international E & S standards

The expansion of the sector has attracted a range of project sponsors, including technology companies and real estate developers, who may have limited experience managing complex environmental and social risks. Many sponsors rely exclusively on domestic regulatory frameworks, which may not adequately address material issues. Financial institutions should look to international standards, such as the Equator Principles (EP4), the IFC Performance Standards, and the UN Guiding Principles on Business and Human Rights, to guide their due diligence and reinforce accountability.

What banks can do

Banks should use their expertise to build client understanding of the business rationale for international standards. By communicating expectations early in the transaction, banks can help sponsors explore how a project can proceed successfully while identifying and addressing risks. Collaboration with financial sector peers, both within and outside individual transactions, can help build common expectations and coordinate priority messages to the sector at large.

Challenge #4: banks’ E & S due diligence requirements, including those related to stakeholder engagement, are facing increased scrutiny or resistance in some jurisdictions

Financial institutions operate in a complex environment where expectations for robust due diligence face scrutiny. Political opposition to ESG-related practices in parts of the United States and evolving regulatory approaches in China have created uncertainty regarding the extent to which banks can request social information beyond domestic legal requirements.

What banks can do

Practitioners should distinguish between politicised debates and the practical need to identify material environmental and social impacts that create business risk. Connecting impacts on people and the planet to financial risk helps build a compelling case for action. Meaningful community engagement should be framed as a core risk management tool for identifying concerns early and reducing the likelihood of costly disputes.

Challenge #5: speed of data centre transactions and timing or nature of bank involvement

The rapid pace of data centre financing can compress due diligence timeframes. Practitioners are often engaged only after key decisions, such as site selection and design, have been finalised. Furthermore, transaction structures like multi-project facilities may limit visibility into the risk profile of individual projects.

What banks can do

Within a single transaction, banks should focus on issues with the greatest severity of impact on people and seek to build leverage with other lenders to coordinate expectations. At the portfolio level, institutions can strengthen internal capability, disclose clear commitments, and participate in industry initiatives such as the Greening AI Data Centres Coalition. Engaging clients outside the transaction context allows for the articulation of expectations before financing is sought.

Conclusion

Addressing the social impacts of data centres requires a deliberate and integrated approach. By drawing on strategies from other sectors and leveraging international standards, financial institutions can steer clients toward more responsible practices that mitigate both human rights risks and financial harm.