Global demand for data centers is surging at an unprecedented pace, driven largely by the growth of artificial intelligence and cloud storage.  Private equity firms, sovereign wealth funds, tech companies and others are investing billions of dollars in data centers, with such investments expected to increase considerably over the next few years.  While investors in data centers focus on evaluating risks associated with infrastructure, power supply, land use, real estate and regulatory matters, they should not overlook environmental, health and safety (“EH&S”) risks.

Nature of EH&S Risks

EH&S risks associated with data centers differ from those typically evaluated by private equity firms and other investors in deals involving manufacturing or other operations.  Data center EH&S risks requiring consideration include the following:

• Water Consumption. Most large data centers rely on cooling-tower systems that continuously draw and evaporate water to keep their servers from overheating.  Cooling systems can require millions of gallons of water per day, which could strain supplies in water-stressed regions.  Issues related to water usage could result in disputes with local communities, municipalities, nongovernmental organizations and others.  Such disputes could impair a company’s reputation, causing investors to reconsider potential investments.  Water shortages are increasingly becoming a significant issue in certain regions in the United States, which is likely to raise red flags in data center deals in these regions.  Municipalities and other authorities could impose water usage limits on existing data center operations, forcing data center operators to curtail operations.  Water issues for new data center projects will need to be analyzed more critically as they affect siting feasibility.
• Noise. Material noise issues do not often arise in deals involving manufacturing and other operations, but noise issues can pose unique risks in data center deals.  Hundreds of servers operating in a small space can create significant noise levels, particularly when combined with noise from HVAC systems that cool servers and generators that serve as backup power sources.  Noise issues are particularly problematic when data centers are located near residential communities.  Rising concerns across the U.S. over noise from existing and proposed data centers have led some residents to file suit to cease data center operations.  Some investors may reconsider their proposed investments if they believe data centers will need to curtail operations to abate noise issues.
• Air Emissions. Air emissions from diesel generators and other data center sources may include nitrogen oxides, fine particulate matter, carbon monoxide and other hazardous materials.  A November 2025 Harvard Business Review article highlighted potential respiratory-related health impacts resulting from emissions of fine particulate matter and other hazardous materials.  There could be future claims alleging respiratory and other adverse health effects related to air emissions from data centers.  In addition, some governmental authorities are conducting health impact assessments of diesel generators, potentially resulting in the need to replace or upgrade such equipment.
• Power Availability/GHG Emissions. Securing adequate and reliable power for data centers is a major issue that transcends environmental considerations.  The growing appetite for artificial intelligence and digital services requires substantial energy due in part to the electricity required to power equipment and the cooling systems essential for maintaining optimal operating conditions.  Data centers are being blamed for rolling brownouts, causing some authorities to impose temporary moratoriums on new data centers.  Given the potential strain on grid infrastructure, some data centers could be impacted by usage caps or other imposed limitations.  As most of the electricity used by U.S. data centers is generated from fossil fuels, incremental power demand is likely to be met largely through carbon-intensive sources.  The significant greenhouse gas emissions may raise issues with investors concerned that such emissions could run afoul of current or future laws restricting GHG emissions or may otherwise impact investors’ own climate-related commitments.
  

Data Center Due Diligence

EH&S due diligence on data centers differs from the diligence on manufacturing or other operations typically evaluated by investors.  Data center due diligence reports tend to focus on water usage, noise and the EH&S issues identified above, rather than on soil and groundwater contamination, which is often investors’ primary concern.  These reports are more holistic in nature than the Phase I environmental site assessments (Phase Is) that private equity firms and other investors typically commission as the cornerstone of their due diligence for investments in other industries.  EH&S advisors will need to coordinate their review with other deal advisors to ensure investors properly evaluate the impact of identified issues on potential litigation risks, reputational concerns, permit delays and regulatory roadblocks.Though beyond the scope of this article, greenfield data center projects require a considerably more comprehensive analysis of EH&S issues than investments in existing data center projects, as even relatively minor EH&S issues can significantly impact project timing and feasibility.  New projects will require developers to navigate local, state and federal requirements and to consider environmental impacts beyond water, noise, air and GHG emissions, including those arising under the National Environmental Policy Act and Endangered Species Act.

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Private equity firms and other investors should ensure they properly evaluate EH&S risks associated with data centers.  Though EH&S risks are typically not as significant as power supply, land use and certain other risks, they could significantly impact an investment.  Investors will need to ensure they consider all EH&S risks and evaluate reputational, litigation and other concerns.

This post is  based on a Debevoise & Plimpton LLP memorandum, “Investing in Data Centers:  Don’t Overlook Environmental Risks,” dated May 18, 2026.