Data Center Investment Raises Disclosure and D&O Risks Amid Policy Shifts
Data center investment is creating a governance challenge alongside its construction and power demands: the economics of a project can change while a company is still building it. For boards and risk managers, that gap between projected returns and operating reality may become a directors and officers liability issue, particularly when investors question what management knew and what the company disclosed.
Regulatory conditions are shifting across major data center markets. The United States has no single federal framework for these projects, leaving developers to navigate requirements that vary by state and locality. A site that appears commercially attractive at approval may face new permitting conditions, utility constraints or community opposition before it reaches full operation.
Local rules are reshaping project assumptions
New York temporarily paused environmental permitting for some new hyperscale data centers in July for up to a year. The state said the pause would give it time to develop a framework addressing energy costs, environmental effects and community benefits. Pennsylvania added requirements for data center developers in August, including standards concerning energy affordability and environmental protection, and local approval before state permits can be issued.
Local governments elsewhere have adopted or considered limits in response to concerns about electricity demand, water use, noise and land use. Residents and environmental advocates have also increasingly opposed new developments. That opposition can affect schedules and project costs even where a proposal has already attracted substantial capital.
Virginia and Texas show that conditions are changing even in states widely viewed as receptive to the technology sector. Virginia has introduced site-assessment requirements for certain facilities with high energy use. State regulators have also required data centers to cover the cost of transmission infrastructure built exclusively to serve them.
Texas has enacted rules for connecting large electricity loads to the grid, including provisions addressing infrastructure costs and reliability. In August, Gov. Greg Abbott directed state regulators to audit data centers seeking grid connections before those projects could proceed. For companies, access to power is therefore a central variable in both construction planning and expected capacity.
Here's the thing: a project can remain physically intact while its financial case weakens. New requirements, higher infrastructure costs, lost tax incentives or slower approvals can reduce capacity, defer revenue or lower expected returns. Design and operating inefficiencies can also damage economics after a facility is complete.
Disclosure risk follows changing project economics
Investors need a clear account of the assumptions behind major infrastructure commitments. Public companies investing in AI capacity must decide what to say about permits, power availability, construction timelines, financing needs and the likelihood that planned capacity will become operational on schedule.
Those statements may be accurate when first made, then become outdated as new constraints emerge. A utility limitation, regulatory change or community challenge can alter the basis for earlier projections. If the company fails to update its disclosures when material assumptions change, shareholders may allege that they were misled.
Recent securities cases illustrate how project execution can lead to disclosure claims. In Masaitis v. CoreWeave, Inc., filed in the U.S. District Court for the District of New Jersey on Jan. 12, 2026, plaintiffs alleged that investors were misled about delays affecting a Texas data center cluster and CoreWeave’s ability to meet customer demand. CoreWeave says the allegations are meritless. The case remains in litigation, but it highlights how construction delays or capacity shortfalls can become relevant to claims about revenue and growth projections.
In Uniformed Sanitationmen’s Ass’n Compensation Accrual Fund v. Equinix, Inc., filed in the U.S. District Court for the Northern District of California on Jan. 6, 2025, plaintiffs alleged in part that Equinix overstated power capacity without adequately disclosing the issue to investors. The court dismissed the power-capacity disclosure theory because the plaintiffs had not adequately alleged materiality. It allowed a separate theory involving the company’s reported financial metrics to proceed.
Applied Digital and certain executives have also faced allegations, disclosed in the company’s 2026 Form 10-K, concerning statements about the profitability of its data center hosting business and its ability to shift to a low-cost cloud-services provider. These cases involve different companies and allegations, but each shows how questions about operational performance can reach public disclosures.
The claims’ eventual outcomes are separate from the practical concern for boards: when reported expectations diverge from project performance, investors may challenge both the statements and the process behind them.
Board oversight and insurance need to track the exposure
Directors approving large data center commitments should understand the main factors that could change a project’s cost, usable capacity or return. Electricity prices, power and water availability, tax incentives and community response can all affect the financial case. Boards cannot anticipate every policy shift, but plaintiffs may examine the information directors received, how they assessed it and whether they responded to warning signs.
The insurance exposure also spans more than one policy category. D&O insurance generally does not cover a data center’s physical performance. The management liability question arises when an operational or regulatory problem leads to allegations of misleading disclosure, weak oversight or another governance failure. Whether a policy responds depends on its wording, the claim and the insured parties.
For D&O insurers, the concentration and dependencies behind a company’s data center strategy deserve close attention. Relevant underwriting questions include where investments are located, how much they rely on utility service and regulatory approval, their power and water needs, whether government incentives support their economics, and how the board monitors major infrastructure commitments.
Connect project reporting to public statements
Risk managers can help by treating regulatory change as a business risk that reaches beyond the permitting stage. Boards should receive regular updates on material projects, including approval status, power and water supply, community opposition, construction progress, financing, tax incentives and revisions to projected economics.
Companies also need clear escalation procedures for material changes to a project’s assumptions. When a schedule slips, expected capacity falls or costs rise, the people responsible for investor communications need timely information from teams handling construction, utilities, permitting and regulatory engagement. Disclosure review works best when it reflects current operating conditions.
Insurance reviews should take place before a project announcement or major capital commitment. Risk managers and brokers can map plausible loss scenarios across the insurance program, clarify which policy may respond and identify provisions that could leave a gap.
The central exposure is not that every data center will face a permit pause or shareholder claim. It is that large financial commitments depend on assumptions about power, approvals, schedules and demand that can shift before a project begins producing the expected returns. Boards that keep those assumptions visible—and connect them to both oversight and disclosure—will be better positioned to manage the next change.
Patrick M. Kennell is co-managing partner of Kaufman Dolowich’s New York office. Kristen S. Swift is managing partner of the firm’s Delaware office. Both defend directors, officers and corporations, and handle insurance coverage matters.