Global legal risks for data centers

Why should I read this?

As data centers become the backbone of the global digital economy, their legal and environmental footprint is drawing unprecedented scrutiny. This is no longer a niche infrastructure issue, it’s a strategic legal priority. International courts are redefining States’ environmental obligations under international law, with the anticipation that regulatory frameworks will in time shift in response as well. These new developments confirm that environmental law obligations are increasingly becoming legally actionable. Businesses must now reassess how they invest, operate, and protect their interests in this space. From energy and water consumption to treaty protections and dispute resolution, the legal risks are growing. These converging pressures are reshaping the risk landscape for data center investments and demand careful consideration at the highest strategic level.

What should I do?

For existing investments:

• Conduct a thorough audit of environmental and energy compliance across all data center operations, ensuring alignment with emerging international standards and local regulations.
• Closely monitor geopolitical and legal developments, particularly those stemming from international courts and regulatory bodies, which may influence infrastructure requirements and operational risks.
• Review existing contracts and investment treaties, focusing on dispute resolution clauses and protections available under international law. Pay special attention to exposure under local law and the potential impact of regulatory reforms.

For new investments, make sure to:

• Ensure coverage under a robust investment treaty framework between the host State and the investor’s home State, ideally one that includes strong protections against expropriation and unfair regulatory treatment.
• Prioritize international arbitration as the dispute resolution mechanism in contracts relating to the operation of the data center, avoiding provisions that require adjudication in local courts or under local law, which may be less favorable or prejudicial to foreign investors.
• Assess the long-term regulatory environment of the host jurisdiction, including the likelihood of changes to incentives, zoning, or environmental standards, and incorporate risk mitigation strategies accordingly.
• Design contracts with flexibility, resilience and in particular carefully drafted force majeure clauses that allow for renegotiation or adaptation in the event of regulatory changes affecting operational or financial viability.

What do I need to know about the environmental impact of connectivity and the role of international law?

There are over 8.4 million data centers globally, varying in size, design and function. These factors have a bearing on these data centers’ energy consumption, investment needs, and long-term sustainability. The larger ones, i.e. hyperscale centers, exceed 10,000 m² and 500,000 servers, and operate at capacities of at least 100 MW. By 2030, as competition among data center investors intensifies across key markets, these facilities are expected to require a twofold increase in energy access to support their operations. Furthermore, the shift toward liquid cooling for efficiency and scalability has made water usage a growing concern amid global scarcity of clean water. Despite limited transparency on data centers’ water consumption data, estimates indicate that each hyperscale center consumes around 2.1 million liters daily (760 million annually), while medium-large centers use 68,000 liters daily, per facility (24.9 million annually). These estimates underscore the sector’s environmental footprint and the urgent need for sustainable innovation.

Recent advisory opinions from prominent international courts have clarified States’ environmental obligations under international law, likely prompting regulatory shifts that will affect investments in the sector. In 2025, the Inter-American Court recognized a human right to a healthy climate, requiring ecosystem protection and water access, while the International Court of Justice affirmed States’ duties under international law to prevent and remedy climate harm. In 2024, the International Tribunal for the Law of the Sea classified greenhouse gas emissions (to which data centers contribute) as marine pollution under United Nations Convention on the Law of the Sea. These authoritative interpretations of international law obligations shape State behavior through legal persuasion and reputational pressure, reinforcing the position that climate-related harm is legally actionable. Their geopolitical impact is clear, marking a shift in international law toward stronger environmental accountability.

What else do I need to know about data center disputes?

As data centers continue to expand in scale and importance, they face increasing scrutiny from governments and regulators. This shift is likely to spark legal disputes over land use, access to energy, and the management of cross-border data flows. For such conflicts, international arbitration offers a neutral and flexible forum for stakeholders operating across jurisdictions.

Regulatory shifts can have far-reaching consequences. Incentives previously granted to data center investors, such as tax breaks, access to power or resources, utility discounts, or zoning permissions, may be revoked or restructured, disrupting the bankability and operational foundations of these projects. Aside from disputes with the host-State itself, such changes can often trigger a cascade of disputes among other key stakeholders, including data center operators, tenants (e.g. cloud service providers), facility management companies, insurers and utility providers.

Dispute resolution will largely depend on existing contracts. When governed by local law, they may disadvantage foreign investors, especially amid regulatory reforms, which in many jurisdictions can be implemented without triggering liability or compensation. This exposes foreign investors to legal and financial risks, underscoring the importance of proactive legal planning and robust dispute resolution mechanisms.

Supported by Clare Johnston (Knowledge Team)

For more information on data centers and protections under international commercial and investment arbitration, please reach out to one of the contacts listed below.