Nearing Net Zero: Data centres and the social license question

Elena Lambros
Hello and welcome to ESG Matters by Ashurst Perkins Coie.

My name is Elena Lambros, and I'm a Risk Advisory partner based in Brisbane. You're listening to a special audio podcast taken from our regular Nearing Net Zero mini-series.
In this episode, we explore a topic that is on the tip of everyone's tongues at the moment: data centers.

In particular, we consider how to meet society's rising appetite for data and tech while managing the community and environmental impacts of data center construction and operations. It's a nuanced discussion that weighs up issues such as regulation, investment, innovation, and more.

For this discussion, I was joined by my regular co-host for Nearing Net Zero, Dan Brown. Dan is Global Leader for the energy and infrastructure industry here at Ashurst Perkins Coie.
Dan started us off by providing some context, reflecting on the rapid growth of data centers and where social performance comes into it. Let's jump in and take a listen…

Dan Brown
Yeah, I think it's such an important issue for us to be discussing right now. It's one that surprises me, in a sense. Not that we didn't see it coming, but that it's crept up really quickly.

You know, we've had this long history of growing community sentiment around the built environment, particularly large infrastructure projects or large energy projects. But, almost overnight, the data center and digital infrastructure build-out has gained a pace and scale that has probably never been seen before in the history of the industrialized world.

And so with that, naturally, there's going to be a whole bunch of issues that arise for the communities in which these assets are being developed. And I don't think there's any doubt that these assets are fundamental to the economies of tomorrow, but how do we integrate them into our communities in a way that's appropriate? And I think that's really what this social performance piece really is aiming at, at the moment, isn't it.

Elena Lambros
Yeah, that's right. Because I think there's so much conversation around the energy and the water requirements and the scrutiny that's being drawn around that. But if you just talk about some of the numbers, so you can when you talk about the scale and the size, it's just incredible: There's 170 billion dollars in announced AI data center capacity, and that's actually just ones that have been blocked, withdrawn, or stalled by community opposition since January 2024.

Dan Brown
Yeah, it's incredible, isn't it?

Elena
It is just incredible. You're even talking about those numbers, and that's what's been stalled from the community opposition lens.

Dan Brown
Yes, and I know that even more recently, in the US particularly (and that's the hottest market at the moment, right?) between January and March of this year alone, 75 US data centers worth around $130 billion again have been blocked or stalled because of this social performance element that perhaps hasn't been considered in the right way. So that's nearly as many as were blocked in the whole of last year.

That's a really incredible shift in community sentiment around these core pieces of infrastructure.

Elena Lambros
It is, and I think it's also the fact that the community is becoming very much more sophisticated around how they're blocking these.

It's not local objections or, you know, your ‘backyard objections’. It's really those coordinated media campaigns. It's legal challenges. It's political pressure.

And when you're thinking about that speed-to-market that all of those hyperscalers are focusing on, those project delays are really significant and really costly to them

Dan Brown
Yeah. Well, look, and it's not just happening in the US. In the UK, the government over there have conceded on a particular project that through granting the permitting and approvals process for that data center, they didn't actually consider in the appropriate way environmental mitigation measures.

So it isn't a phenomenon that's just in the US. It's in the UK. We're also seeing advocacy groups here in Australia also wanting to ensure that the right considerations and processes have been taking place when granting approval for these projects.

Elena Lambros
Yeah, and also to consider the regulatory environment. I know we've talked a lot about the US and UK. But the Asia-Pacific regulatory environment is changing quite significantly. So when you're thinking about that from the lens of a financier or an investor, whether that's providing project finance or investing in digital like infrastructure, advising on a deal, you really need to understand that regulatory risk as well that's sitting alongside the social performance and how they interact together.

Dan Brown
Definitely. And I think the other thing with these projects – from a social performance perspective – is the scale at which we're building the data centers is immense because our thirst for data, as a community, is growing right at an exponential rate. From our watches to our phones to our smart devices in our houses to our vehicles, you know, and the list goes on.

So, for me, when we look at that, we can't just look at the data center in isolation because what does a data center need? Ideally, it needs upstream firm electrons, ideally from a green source. So the infrastructure required to deliver that electricity need for a single data center is quite immense. It needs water, so there's a whole bunch of infrastructure required to build that out. It needs transmission to connect those renewables. Again, a whole lot of infrastructure to build that out. There needs to be connectivity from a fiber perspective. So again, more infrastructure that goes into the ground.
And so it makes sense that there is this concern from a community perspective. It's just how we navigate that. And you're right, financiers, investors, project developers – they need to understand the regulatory environment in which we operate, particularly given how it's shifting.

And here in Australia, we're seeing the AI Office established. We're seeing clear guidelines from a federal perspective around additionality of renewables for connection of new data centers. Not all of the states are on board with that, but there just seems to be sort of more overlaying of regulatory and other red tape around getting these critical pieces of infrastructure away, at a time when the AI hyperscalers and others just need speed to compute and speed to power.

So it's really challenging to balance all of these competing interests.

Elena Lambros
It absolutely is. So then, if you think about that, and Australia is just one example, there are many examples of countries doing different things, like Singapore with their strict sustainability requirements.

Dan Brown
They've just lifted their moratorium on data center buildout, by the way.

Elena Lambros
Yes they have – with some strict requirements around those percentages of energy, which is, as you mentioned earlier, from renewables.
But what can people do about that? There's so much discussion around the impact, and we've just spoken at a high level around some of the social community performance issues, but what other things can people be doing to address these risks and make sure the projects are getting up?

Dan Brown
There's so many things that can be done.
And in no particular order, there are things like how do we repurpose existing industrial facilities to house these data centers? So a really good example that some of our gentailers are doing in the Australian market are repurposing old coal-fired and fossil fuel-fired power station sites to house data centers:

• Great spine of water infrastructure
• Great spine of transmission and distribution infrastructure
• Ability to drop in cable and fiber connectivity
• Already has a site that has been used for something that is permitted, perhaps under more stringent environmental standards, given the way that some of our coal-fired power stations work.

So one of the pathways, and we're seeing it happen (not just here in Australia but globally) the repurposing of those industrial zones to house some of these data center campuses. That's one of the really key pieces.

The second piece, and outside of that site selection (because there's only a limited number of those sites that can be repurposed) is being really clear on engaging with the community from the outset. And if we've learned anything from the mining industry in the Australian context, anything from the oil and gas or the gas – particularly the gas industry here in Australia – and now more relevantly, and recently the renewables build out it’s that community engagement has to be the cornerstone of the development of any of these assets. And it has to be done in a very meaningful and respectful way. And it has to acknowledge the impact on community. But also it has to provide support to ensure that there are jobs and other benefits flowing – real benefits – flowing back to the community.

And I feel like, notwithstanding that we've had series of iterations through different industries at developing assets in these places, we just still haven't got it right.

Elena Lambros
I think that's right. I do agree around learning from those extractive industries, and what we've seen in the past, particularly around the community and the benefit sharing arrangements and the way that they engage with the communities, they've built up that kind of knowledge and the way to do it over a long period of time. So there are lessons that can be drawn.

Dan Brown
I also think – and this is deeply aspirational – but one of the challenges with the energy transition or the journey to net zero, as we're seeing it, is there isn't this ‘grounded fact base’ around what the benefits of the energy transition will be, or what it is that we're seeking to address.

Perhaps there's an opportunity with the data centere build-out to create a really clear factual base around what is involved in the build-out of this infrastructure. And core amongst those is water usage.
It feels like every other LinkedIn post that I look at around data centers and water usage has a different premise around how much water these assets use. Surely we're able to come up with a coherent and singular fact base around these things so that we can talk to communities. We can engage with them in the right way. And then everybody's operating off the same factual base, rather than what has been less effective in other industries around that really clear mandate and fact base about the impact on the environment and communities of those projects.

Elena Lambros
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