CALL FOR EVIDENCE

This document aims to inform the public and stakeholders about the Commission's work, so they can provide feedback and participate effectively in consultation activities.

Title of the initiative

Application of the "do no significant harm" principle to the Social Climate Fund and policy reflections for its future extension under the next Multiannual Financial Framework.

Lead DG – responsible unit

SG-RECOVER

Likely Type of initiative

Commission Communication

Indicative Timing

Q3 2024

Additional Information

Link to European Commission’s Joint Research Centre report “The implementation of the ‘Do No Significant Harm’ principle in selected EU instruments”

A. Political context, problem definition and subsidiarity check

Political context

The ‘do no significant harm’ principle (hereafter DNSH principle) was first defined in Regulation (EU) 2020/852 (Taxonomy Regulation). This regulation aims to classify economic activities based on their substantial contribution to at least one of the six environmental objectives and the absence of significant harm done to the other objectives. The Taxonomy Regulation contributes to the European Green Deal objectives, by helping to identify environmentally sustainable activities and channel private investments in a coherent manner towards them.

In line with the European Green Deal’s green oath that “All EU actions and policies should pull together to help the EU achieve a successful and just transition towards a sustainable future”, the DNSH principle applies to an increasing number of Union funds. The DNSH principle is already applicable to the Recovery and Resilience Facility and has to be taken into account under the Cohesion Policy Funds under the Common Provision Regulation (e.g. for the European Regional Development Fund, Cohesion Fund and Just Transition Fund). The InvestEU Fund uses so-called “sustainability proofing guidance” to operationalise the DNSH principle.

In addition, the DNSH principle will be applicable in different forms to the Modernisation and Innovation Fund from 2025 (applying the Taxonomy delegated acts when technical screening criteria have been developed for the concerned activity) and the Social Climate Fund from 2026 (development of a dedicated guidance). Finally, the provisionally agreed amendment of the Financial Regulation applicable to the general budget of the Union provides that the next Multi-annual Financial Framework (hereafter MFF) will be subject to the DNSH principle, where feasible and appropriate.

Problem the initiative aims to tackle

In the context of the Social Climate Fund, Article 6(5) of Regulation EU) 2023/955 establishing the Social Climate Fund sets out the requirement for the Commission to issue a Technical Guidance, tailored to the scope of the Fund, on the compliance of measures and investments with the principle of ‘do no significant harm’ within the meaning of Article 17 of Regulation (EU) 2020/852. It aims to guide Member States and to explain how the measures included in their Social Climate Plans are to comply with the principle of ‘do no significant harm’. In the past, the Commission developed a DNSH Technical Guidance C(2023) 6454 for the Recovery and Resilience Facility (RRF), the “Explanatory note on the Application of the DNSH principle” under Cohesion Policy, as well as the InvestEU Sustainability Proofing Guidance for the repayable support under the InvestEU Fund.

The extension of the application of the DNSH principle in the future combined with ad hoc guidance for each Union fund and programme may entail a risk of diverging approaches in the application of the principle that are not necessarily justified by the specificities of those funds. Those risks and the opportunities stemming from a common methodological basis for the application of the DNSH principle were analysed in a recent Commission’s report executed by the Joint Research Centre 1 . 

Existing risks include:

Firstly, divergences in the approaches employed to assess compliance with the DNSH principle can create confusion about the applicable rules. They can make it difficult for the Commission, Member States, implementing partners and beneficiaries to apply the principle in a consistent, simple, proportionate, and impactful way. The observed divergences in its current implementation could risk widening further in absence of additional action.

Secondly, inconsistent approaches could limit the synergies among EU funding instruments and hinder the overall contribution to the EU climate and environmental objectives. These divergences can prevent the efficient combination of support from different Union funds.

Thirdly, different approaches on the operationalisation of the DNSH principle may create unnecessary administrative and compliance burden, as each fund manager would have to develop specific expertise in DNSH interpretation for each fund and subsequent application. Different DNSH conditions for broadly similar activities or assets may confuse beneficiaries and may result in misallocation of resources in an attempt to comply with different rules, leading to suboptimal outcomes.

Finally, while the DNSH criteria laid down in the Taxonomy delegated acts represent a useful reference for developing a common methodological basis for the DNSH principle, adjustments would be required for EU funds and programmes. The Taxonomy only defines DNSH criteria for those activities that can make a substantial contribution to one of the environmental objectives. Therefore, the Taxonomy has a too narrow scope to be applied without further elaboration to EU funds, whose scope goes beyond environmental objectives.

Basis for EU action (legal basis and subsidiarity check)

Legal basis

Article 7(3) of Regulation (EU) 2023/955 requires that “The Fund shall only support measures and investments which comply with the principle of ‘do no significant harm’ within the meaning of Article 17 of Regulation (EU) 2020/852”. Article 6(5) of this Regulation sets out the requirement for the Commission to issue a Technical Guidance to guide Member States and explain how the measures included in their Social Climate Plan are to comply with the principle of ‘do no significant harm’.

Additionally, basic acts for several Union programmes and funds include a DNSH provision which refers to Regulation (EU) 2020/852 (EU Taxonomy Regulation).

These are:

-Cohesion Policy under Common Provision Regulation (European Regional Development Fund (ERDF); European Social Fund Plus (ESF+); Cohesion Fund; Just Transition Fund (JTF); European Maritime, Fisheries and Aquaculture Fund (EMFAF); Asylum, Migration and Integration Fund (AMIF); Internal Security Fund (ISF); Border Management and Visa Instrument (BMVI)): Recital 10 and Article 9(4) of https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32021R1060: Recital 6 of Regulation (EU) 2021/1058 (ERDF/CF), and JTF Regulation (EU) 2021/1056: Recital 6of Regulation (EU) 2021/1056 (JTF);

-Recovery and Resilience Facility (Regulation - 2021/241 - EN - rrf - EUR-Lex (europa.eu)) and REPowerEU (Publications Office (europa.eu)): Article 5(2), Article 17(4), Article 18(4), point (d), Article 19(3), point (d) and Article 21(c)(6) of Regulation (EU) 2023/435 -the latter only relevant for REPowerEU chapters-. 

-ETS Directive regarding the Modernisation Fund and Innovation Fund (Directive 2003/87/EC): Article 10(f).

-Commission proposal for a Regulation establishing the Ukraine Facility: Article 4 paragraph 4.

In addition, the provisionally agreed recast Financial Regulation applicable to the EU budget also refers to DNSH (Amendment to the Financial Regulation/ 2022) under Article 33(2)(d).

Practical need for EU action

The DNSH principle, as enshrined in (EU) 2023/955 on the Social Climate Fund Regulation, requires technical guidance for its application (Article 6(5)). The European Commission is therefore required by law to provide such guidance. This initiative therefore aims at fulfilling an obligation set out in the Social Climate Fund Regulation.

In addition, this initiative represents an opportunity to reflect on how the application of the DNSH principle could be made more effective, coherent and streamlined in the future, building on the lessons learned in its application in various EU funds and programmes this MFF.

B. What does the initiative aim to achieve and how

The initiative will aim to deliver on the two problems mentioned above.

Firstly, the initiative aims to provide Technical Guidance on how the measures and investments are to comply with the principle of ‘do no significant harm’ under the Social Climate Fund. The Technical Guidance would provide principles and tools to assess DNSH compliance for measures and investments eligible under the Fund as defined in Article 8 of Regulation 2023/955. In addition, it would define sector-specific annexes for the activities and assets eligible under the Social Climate Fund, in particular in the transport and building sectors, providing targeted criteria to ensure that an activity or an asset does not cause significant harm to the six environmental objectives. Unlike the Taxonomy, the Technical Guidance would define DNSH compliance for any activity, independent of its significant contribution to at least one environmental objective. The Guidance will also clarify ex ante the recommended evidence to demonstrate such compliance.

Secondly, recognizing the growing importance of the DNSH principle, a strategic reflection is needed for the next Multiannual Financial Framework (MFF). While the current application across various funds has delivered tangible positive results, there is room for improvement to make full use of the DNSH principle in a harmonised and simplified way. To achieve this, the Communication will be accompanied by policy reflections. These reflections will explore how to operationalize DNSH consistently across relevant sectors. They will leverage the existing technical guidance for the Social Climate Fund as a valuable starting point.

A key advantage of a future single approach would be increased legal certainty and streamlined procedures. Clear, ex-ante criteria for DNSH compliance, would eliminate confusion for Member States, project developers, and beneficiaries. This would minimize administrative burdens by reducing the need for duplicative reporting across different funds. The policy reflections will take into account sector-specific circumstances and the existing legal frameworks, which often define eligibility conditions, financing priorities, and verification mechanisms. However, it will reflect on core DNSH principles that could be integrated and adapted within the context of each specific fund in the future.

Finally, the initiative would ensure an efficient use of European Commission and Member States’ administrative resources by better streamlining criteria for DNSH compliance and identifying and exploiting synergies with existing requirements stemming from EU law. Importantly, the policy reflections would clarify that a the DNSH guidance would be without prejudice to compliance with Union law and that fund-specific legislation regarding the application of the principle, including possible derogations due to other prevailing public policy objectives, would always prevail.

Likely impacts

The DNSH Technical Guidance for the Social Climate Fund will ensure the Social Climate Fund is aligned with the Union’s climate, energy, and environmental objectives. In particular, it is expected to have a positive impact on the scale-up and deployment of key technologies for the green transition and European competitiveness while supporting a just transition that leaves no one behind, in particular mitigating adverse effects on vulnerable households, vulnerable transport users and vulnerable microenterprises. The Technical DNSH Guidance for the Social Climate Fund will help and support Member States’ administration, implementing partners, as well as final beneficiaries of the Fund to be compliant with the DNSH principle and the Regulation,

Additionally, the policy reflections accompanying the guidance will discuss the contribution of an envisaged Single DNSH Guidance to a more consistent and meaningful application of the DNSH principle across Union funds, where feasible and appropriate, for the next MFF with the aim to reducing the pressure, administrative burden and red tape on Member States and final beneficiaries by allowing to comply with a streamlined set of DNSH requirements instead of uncoordinated fund-specific DNSH requirements. This initiative would also support an efficient spending of future EU funds by allowing for synergies between funds.

Several Sustainable Development Goals (hereafter, SDGs) will be positively affected by this initiative due to their link to the European Green Deal objectives to which the Single DNSH Guidance aims to contribute. This is notably the case for the following SDGs: #7 – Affordable and clean energy-; #11- Sustainable cities and communities-; #12- responsible consumption and production-; #13- Climate action-; #14 – Life below water-; and #15- Life on land-.

Future monitoring

The Technical Guidance would be issued ahead of the Social Climate Fund implementation, as mandated by Regulation 2023/955. The policy reflections on the future development of a single DNSH guidance will inform the discussions on the future MFF. Given the nature of the EU environmental and climate legislation and the fast-evolving technical developments, such a guidance would need to be regularly reviewed to ensure it remains future-proof.

C. Better regulation

Impact assessment

An impact assessment is not being conducted to support the preparation of the initiative. Firstly, the initiative will not impose legal obligations on Member States or private entities, but rather provide guidance on what is understood as DNSH compliance under the Social Climate Fund by the Commission. Therefore, an impact assessment is not required. Moreover, this initiative builds on existing guidance documents, such as the RRF DNSH Technical Guidance on the RRF which have already been applied. Finally, regarding the policy reflections on the future application of the DNSH principle, the JRC report concludes that there is common ground in the application of the DNSH principle for a range of specific programmes to enable the design of possible common tools to support an improved application of the DNSH principle across EU instruments.

Consultation strategy

The aim of the consultations is to inform the relevant stakeholders of the upcoming development of a DNSH Technical Guidance for the Social Climate Fund, which will include policy reflections on the application of the DNSH principle in the future under other EU funds, where feasible and appropriate. The consultation also aims to gather stakeholders’ feedback and knowledge on the DNSH principle and its application/interpretation, based on their experience in the application of the DNSH principle so far. 

The consultation activities will include: 1) this Call for evidence, open for feedback for a duration of 4 weeks, through ‘Have Your Say’ portal, available in all official EU languages; 2) a targeted public consultation on the draft Guidance and Social Climate Fund-related sector-specific annexes (transport and buildings); with Member States, stakeholders, and experts as necessary (duration of 8 weeks). In these consultation activities, particular consideration will be given to Member States’ administrative bodies, and other entities with experience on the application of the DNSH principle. Following eight weeks after the closure of the targeted public consultation (consultation activity (2)), a factual summary will be published.

The feedback received in this call for evidence will be analysed and taken into account for the drafting of the guidance.

Why we are consulting?

The consultation will collect evidence, experiences and views from stakeholders. This will enable the Commission to take due consideration of the information on the problems and potential solutions when elaborating the initiative.

Target audience

The main identified stakeholders are: Member States’ national, regional and local authorities in charge of the application of the DNSH principle; industrial associations; social partner organisations; potential implementing partners for EU funding instruments; NGOs with focus on energy, transport, buildings, climate and environment, poverty (incl. energy and transport poverty), as well as social cohesion and inclusion; beneficiaries active in the most relevant economic sectors -such as buildings and transport; and informed citizens.

Additionally, in line with the European Commission’s Better regulation guidelines to develop initiatives informed by the best available knowledge, target audience includes scientific researchers, as well as academic organisations, learned societies, and scientific associations with expertise in the green field technologies to submit relevant published and pre-print scientific research, analyses and data are invited to contribute. There is particular interest in submissions that synthesise the current state of knowledge in relevant field(s).