The data centre industry has a new negotiating partner: Cities

On 23 June, during London Climate Action Week, 41 mayors from six continents signed the Global Urban Data Centres Pact. A first-of-its-kind framework setting out the conditions under which city leaders say they will accept AI and digital infrastructure on their doorstep.

The pact, coordinated by C40 Cities, an alliance of nearly 100 cities working to tackle climate change, sets common standards on clean energy, site selection, water use and community benefit. It is arguably the most significant coordinated intervention by local government in the data centre industry’s expansion to date.

The pact’s founding signatories represent a combined population of more than 90 million people. The list spans some of the most data centre-dense urban markets on the planet; London, Barcelona, Miami, Chicago, Phoenix, Melbourne, Rio de Janeiro and Johannesburg among them. About half of the participating mayors are from the US, with European cities from Greece, Spain, Italy, Germany, the UK and Norway also signing, alongside cities in Canada, Kenya, South Africa, Sierra Leone, Côte d’Ivoire, India, Australia and Lebanon.

The pact does not ask cities to close their doors to the industry, but it does change the terms of entry.

The problem mayors couldn’t ignore

C40 got involved because the mayors of Phoenix and Melbourne came together over shared worries about data centres consuming vast quantities of their cities’ electricity and water and competing with housing developers for available land. “We found out that the challenges in every region around the world were very similar,” said Cassie Sutherland, a managing director at C40. “Our approach was to say how do we now use a global mayoral voice to come together with the conditions under which they will accept data centres.”

Data centre development is expected to grow by over 40% in 50 of C40’s member cities, where around 1,700 facilities are already located. The growth is concentrated precisely because proximity still counts AI-powered systems require near-instantaneous response times, making proximity to clients essential, and data centres tend to cluster, forming metropolitan ecosystems where the business case outweighs land costs.

The result, in many cities, has been a reckoning arriving faster than planning frameworks could absorb it. As Capacity has reported, projects totalling an estimated $156 billion were delayed or cancelled in 2025 alone as a consequence of local opposition, a figure that should focus the minds of any operator or investor who has been treating community relations as a communications problem rather than a commercial one.

Melbourne’s situation is illustrative. If the city follows through on all its current plans, data centres will annually consume up to 20 billion litres of water, around 4% of the drinking water supply, in a city already contending with population growth and longer drought periods driven by climate change.

Lord Mayor Nicholas Reece was unequivocal about the direction of travel: “We don’t want to see a race to the bottom between cities where governments, desperate for investment, are chasing data centres on any terms possible. We want to see a better framework in place so that the investment rush in data centres can be a win-win, a win for investors and also a win for local communities.”

What the pact actually requires

The framework rests on four pillars, each with direct implications for how operators select sites, design facilities and engage with host communities.

On siting, the pact calls for prioritising brownfield regeneration and adaptive reuse, avoiding displacement of existing communities, and coordinating with local governments to minimise public health burdens, including air quality, noise and temperature impacts.

On energy, the commitment is to meet power demand without building new fossil fuel capacity, reopening decommissioned plants or extending the life of existing ones, and to secure new and additional renewable energy generation or storage equivalent to, at a minimum, total power demand.

On water, the standard is equally pointed: best-in-class efficiency and an explicit move away from reliance on potable water sources. The pact also calls for “fair cost coverage”, requiring data centres to directly fund needed upgrades to energy, water and network infrastructure, alongside “fair share pricing” tied to sustainability performance, with surplus revenue directed into local sustainability and social funds.

Operators are also expected to publish measurable benchmark data on sustainability and public health metrics, engage directly with the local community and deliver tangible local economic benefits by prioritising procurement from local businesses and supporting the creation of local jobs.

For an industry accustomed to navigating planning permissions through a mix of economic incentive arguments and relatively light-touch local oversight, this represents a meaningful shift in the negotiating environment.

Some cities have already moved. Phoenix updated its zoning in July 2025 to require a special permit for data centres and added health-and-safety review elements tied to power reliability, noise and emergency access. Seattle passed a one-year data centre moratorium while it analyses effects on the electrical grid, water consumption, local utility rates, land-use pressures, jobs and public health.

Phoenix Mayor Kate Gallego, who played a central role in getting the pact off the ground, was direct about the stakes: “Residents expect local leaders to ensure development is planned carefully, infrastructure keeps pace, and surrounding communities share in the benefits.” She added, “We understand the importance of this innovation; it’s creating great jobs in our community. We just want to make sure that we get it right for our local residents and for the health of our planet.”

The gaps and what comes next

None of Southeast Asia’s cities signed the pact, despite the region accounting for a quarter of global energy demand growth. Several said they could not sign because of national policies or other complications, with conversations described as continuing.

The region is home to more than 2,000 data centres across Indonesia, Malaysia, Singapore, Thailand, Vietnam and the Philippines, and the IEA projects energy demand from those facilities will more than double within five years. That the most rapidly expanding data centre market in the world is not party to the framework is a significant structural gap, and one that the industry will be watching closely.

Mayors also face real limits on what they can deliver unilaterally. Sutherland was explicit that the pact’s vision needs to be translated into action, with each city using it as a framework for its own regulations or guidelines, requiring buy-in from other government officials, utilities and the private sector. The pact does not create binding regulation; it sets expectations and provides a shared platform from which cities can negotiate.

The industry’s own voices are increasingly aligned with the direction of travel, if not always the pace. Robert Dunn, CEO of Start Campus, has noted that sustainable data centre development in 2026 has already moved beyond marketing language into engineering-led solutions, driven by the deployment of liquid cooling, waste heat recovery and reuse, zero-water cooling technologies and grid-interactive facility design.

The World Green Building Council welcomed the pact with language that cut to the operational reality: “Data centres are not just buildings; they are major, long-term consumers of critical urban resources, and the decisions being made today about these AI factories will shape local energy systems, water supplies and communities for decades to come.”

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