COMMISSION NOTICE –

Technical guidance on sustainability proofing for the InvestEU Fund

(2021/C 280/01)

DISCLAIMER: The purpose of this notice is to give technical guidance on the screening and sustainability proofing of projects receiving InvestEU support, in line with recital (13) and Articles 8(5) and 8(6) of the InvestEU Regulation. This document was prepared by the Commission with the support of JASPERS and in cooperation with potential implementing partners. For the climate dimension, this document is consistent with the ‘Technical guidance on the climate proofing of infrastructure in the period 2021-2027’. This document also reflects, to the extent possible and relevant, the results of two studies. One study, ‘Technical Support Document for Environmental Proofing of Investments under the InvestEU Programme’, was run by DG Environment. The second study, ‘InvestEU Programme: Guidance on social sustainability proofing of investment and financing operations’, was run by DG Employment. The guidance on sustainability proofing should be used by the implementing partners, financial intermediaries and project promoters/final recipients involved in the deployment of the InvestEU Fund. The sustainability proofing guidance could be relevant for other programmes as well. The guidance may be updated in light of the experience with the implementation of the concerned EU legislation. The present guidance may be complemented with international, national or sectoral considerations or guidance.

TABLE OF CONTENTS

1. INTRODUCTION 5

1.1. Scope 5

1.2. Legal compliance 6

1.3. Thresholds 7

1.4. Sustainability proofing guidance and criteria of the EU Taxonomy 7

1.5. Mid-term evaluation and review of this guidance 10

2. SUSTAINABILITY PROOFING FOR DIRECT FINANCING OPERATIONS 10

2.1. General principles and overall proofing approach 10

2.2. Climate dimension 12

2.2.1. Introduction 12

2.2.2. General approach to climate sustainability proofing 13

2.2.3. Legal compliance 15

2.2.4. Climate resilience 16

2.2.5. Climate neutrality and mitigation of climate change 21

2.2.6. Reporting and monitoring 25

2.3. Environment dimension 26

2.3.1. General approach to environmental proofing 26

2.3.2. Legal compliance 29

2.3.3. InvestEU screening for the environmental dimension 33

2.3.4. Proofing: Mitigation, quantification and monetisation 35

2.3.5. Positive agenda 37

2.3.6. Reporting and monitoring 37

2.4. Social dimension 38

2.4.1. General approach to social sustainability proofing 38

2.4.2. Legal compliance framework for the social dimension 40

2.4.3. Social screening of operations 40

2.4.4. Categorisation of social risk 44

2.4.5. Social proofing 47

2.4.6. Positive agenda 54

2.4.7. Reporting and monitoring 56

2.5. Horizontal provisions for the three dimensions 56

2.5.1. Capacity of the project promoter 56

2.5.2. Contractual arrangements 57

2.6. Economic appraisal of operations 57

2.6.1. Forms of economic appraisal 58

2.6.2. Existing practices for economic appraisal 59

2.6.3. Recommendations for InvestEU 59

2.7. Corporate finance for general purposes 60

3. SUSTAINABILITY PROOFING APPROACH FOR INDIRECT FINANCING OPERATIONS 61

3.1. General proofing requirements 61

3.2. Types of financing 62

3.2.1. Infrastructure funds 62

3.2.2. Non-infrastructure equity or debt funds 64

3.2.3. Intermediated credit lines or other debt products targeting SMEs, small mid-caps and other eligible entities 65

4. ROLES, RESPONSIBILITIES AND THE INVESTEU PROCESS 66

4.1. Roles and responsibilities 66

4.1.1. Role and responsibilities of the project promoter/final recipient 66

4.1.2. Role and responsibilities of the implementing partner 67

4.1.3. Role of the financial intermediary 68

4.1.4. Role of the Investment Committee 68

4.1.5. Role of the Commission 68

4.1.6. Competent public authorities 69

4.2. InvestEU process 69

4.2.1. Policy check 69

4.2.2. Guarantee request form 70

4.2.3. Scoreboard 70

4.2.4. Reporting to the Commission 70

Annex 1 – List of legal requirements 72

Annex 2 – Information to be provided to the InvestEU Investment Committee (Chapter 2) 76

Annex 3 – Proofing checklists to be used by implementing partners for proofing under each dimension 79

Annex 4 – Other resources and guidance documents that can be considered for InvestEU sustainability proofing 108

Annex 5 – Glossary 111

Annex 6 – Additional guidance for intermediated financing (Chapter 3) 114

1. INTRODUCTION

The InvestEU Regulation (1) introduces sustainability of financing and investment operations as an important element in the decision-making process when approving the use of the EU guarantee. For the purpose of this document, sustainability (2) refers to the three dimensions set out in Article 8(5) of the InvestEU Regulation: climate, environmental and social.

To ensure that financing and investment operations receiving support from the InvestEU Fund are in line with or contribute to the EU’s broader sustainability commitments, the InvestEU Regulation requires an ex ante sustainability proofing to identify and address any significant impacts (negative and positive) that these operations might have on the three dimensions.

The purpose of this guidance is to help implementing partners, financial intermediaries, and project promoters/final recipients deal with the InvestEU Regulation’s sustainability proofing requirements. Although this guidance was specifically developed for the InvestEU Fund, it could be used in a wider context by any party (e.g. a project promoter, a financial institution or a public authority) that wishes to take into consideration sustainability aspects in their activity. This guidance was developed in cooperation with potential implementing partners.

The guidance adheres to the principles of proportionality, transparency, and avoidance of undue administrative burden. The proposed approaches for the climate, environment and social dimensions take into consideration the existing practices and specific needs in those areas.

It is structured as follows:

— Chapter 1 sets the general legal context and clarifies some of the concepts used throughout the guidance.

— Chapter 2 presents the approach for the sustainability proofing of directly financed operations. This chapter provides: (i) detailed guidance on how to perform the analysis for each of the three sustainability dimensions; and (ii) recommendations on how to include the results of these analyses in the economic appraisal of the project.

— Chapter 3 provides guidance on the aspects of sustainability proofing related to indirectly financed transactions. This guidance is based on different types of financing and applicable requirements take into consideration their specificities.

— Chapter 4 describes the roles and responsibilities of different actors involved, as well as information on how the sustainability proofing could be aligned with the overall InvestEU processes.

— Annexes – include checklists developed to help implementing partners and project promoters perform the sustainability proofing, as well as a summary of further available resources.

1.1. Scope

The sustainability aspects should be verified for financing and investment operations under all windows of the InvestEU Fund. Nevertheless, some differentiations between operations and windows will be necessary to ensure proportionality and reduce undue administrative burden. Articles 8(5) and 8(6) of the InvestEU Regulation set out the relevant requirements for sustainability proofing.

Pursuant to Article 8(5) of the InvestEU Regulation, financing and investment operations (‘operations’) above a certain threshold (set later in this guidance in Chapter 1.3) and seeking InvestEU support must first be subject to InvestEU screening (3). This screening is intended to help the implementing partners to determine whether operations have environmental, climate or social impacts (negative and positive).

If following the InvestEU screening, the implementing partner concludes that an operation has a significant impact on any of the three dimensions, then the operation must undergo sustainability proofing. The scope of the proofing will depend on the outcome of the InvestEU screening, and it might cover one or more dimensions. The proofing will aim to minimise the operation’s detrimental impacts and maximise its benefits to any of the three dimensions.

For the purpose of this guidance, a project means an investment in physical assets and/or in activities with clearly delineated scope and objectives, such as: (i) infrastructure; (ii) acquisition of equipment, machinery or other capital expenditures; (iii) technology development; (iv) specific research, digital and/or innovation activity; (v) energy efficiency refurbishments. The subject of the screening and proofing must be the project and its impacts thereof.

For general purpose financing (e.g. corporate finance for general purposes) or direct equity investments, the scope of the assessment will be: (i) the general approach of the final recipient to integrating sustainability considerations in their processes; and (ii) the final recipient’s capacity to address the related aspects and impacts deriving from their activities.

1.2. Legal compliance

Financing and investment operations supported by the InvestEU Fund, irrespective of their size and whether proofing is performed or not, must comply with the relevant EU and national legislation. This includes complying with the applicable environmental, social and labour law obligations established by Union law, national law, collective agreements or the international social and environmental conventions listed in Annex X to Directive 2014/24/EU of the European Parliament and of the Council (4).

The implementing partner (or the financial intermediary for indirect finance) should identify the relevant legal requirements (5) applicable to the operation and should verify (6) the compliance with the environmental and social legislation and regulations.

The sustainability proofing performed for the purposes of the InvestEU Regulation will not replace the compliance check with legal requirements under EU legislation and national law. The assessments carried out under EU and national legislation will provide the necessary input data (i.e. estimates of baseline emissions, descriptions of the likely significant effects of the project, positive effects, etc.) that will be used for the proofing, where applicable. The sustainability proofing will identify whether there are any residual impacts. It will also quantify and, where possible, monetise the residual impact that has been assessed to be of a high and/or medium risk. Subsequently, the proofing will address any residual impacts in the project’s economic appraisal, together with expected benefits stemming from the positive impacts of the project. This is the real added value of the sustainability proofing beyond compliance with legal requirements.

The co-legislators have explicitly required that implementing partners undertake sustainability proofing of investments under the InvestEU Fund. This implies ‘raising the bar’ and going beyond a requirement to merely comply with existing legislation. The co-legislators provide guidance on this issue in the InvestEU Regulation. For instance, some recitals refer to the European Pillar of Social Rights (7), the Paris Agreement (8), the United Nations Sustainable Development Goals (9) and the 2018 Global Risks Report (10). Article 8(5) states that projects inconsistent with the climate objectives are not eligible for support under the InvestEU Fund. Moreover, Article 8(6) of the InvestEU Regulation refers to the climate vulnerability and risk assessment to address adaptation and climate resilience, cost of greenhouse gas (‘GHG’) emissions, accounting of impacts on the principal components of the natural capital, social impact of the projects, and identification of projects inconsistent with climate objectives.

1.3. Thresholds

In line with the principle of proportionality, and as required by Article 8(5) of the InvestEU Regulation, operations below an established threshold are exempt from the requirement for screening and sustainability proofing. This threshold applies specifically to InvestEU sustainability proofing, and it does not supersede in any way the legal obligations on project developers from the Environmental Impact Assessment Directive 2011/92/EU of the European Parliament and of the Council (11) (hereafter referred to as the ‘EIA Directive’) or other applicable EU or national law.

Based on current practice and experience gained in the area of environmental impact assessment and sustainability proofing of infrastructure projects, the thresholds below which sustainability proofing will not be required are as set out in the two points below:

(i) For direct operations: a. For (investment) projects, based on total project investment cost (‘PIC’), the threshold is EUR 10 million (12). b. For general corporate finance/direct equity investments, based on total financing provided by the implementing partner to the final recipient, the threshold is EUR 10 million.

(ii) For intermediated operations: a. For infrastructure funds, the same threshold as for direct operations applies to the underlying projects. Based on total project investment cost, this threshold is EUR 10 million. b. For financing of SMEs, small mid-caps and other eligible enterprises, no screening or full sustainability proofing will be required (13). However, a simplified form of sustainability proofing and specific safeguards will be applicable to ensure a minimum alignment with EU commitments, while trying not to overburden small economic actors with complex requirements. The sustainability proofing approach for intermediated financing is detailed in Chapter 3 of this guidance.

1.4. Sustainability proofing guidance and criteria of the EU Taxonomy (14)

The sustainability proofing requirement in the InvestEU Regulation aims to encourage and reward projects that have positive climate, environmental and social impacts, whilst reducing their negative impacts. Sustainability proofing makes possible to: (i) identify a project’s impacts; (ii) introduce mitigation measures to address these impacts; and (iii) where possible, recognise opportunities to improve the project’s sustainability performance.

The EU Taxonomy makes it possible to classify certain economic activities as environmentally sustainable (i.e. substantially contribute to at least one of the six environmental objectives (15) as defined in the Taxonomy Regulation, do no significant harm to any of the other five environmental objectives, and comply with the Minimum Social Safeguards). Sustainability proofing can take into account this classification, and then provide a more in-depth (granular) identification of positive and negative impacts. For this reason, the technical screening criteria of the EU Taxonomy will be used appropriately, including the principle of do no significant harm, after entering into force, where relevant and to the extent possible, throughout the screening and proofing process.

However, it should be noted that the InvestEU Fund covers a broader eligibility spectrum of investments than those economic activities covered by the EU Taxonomy. The InvestEU Fund also aims to take a balanced approach to different EU policy priorities, some of which might not have a strong sustainability potential, whereas the EU Taxonomy is a classification system set up to determine activities that substantially contribute to environmental objectives in the first instance.

Do No Significant Harm (‘DNSH’) criteria

To ensure that projects do not significantly harm EU environmental objectives, as for the EU Taxonomy, compliance with relevant EU environmental legislation is the starting point. Furthermore, compliance with relevant national environmental legislation and environmental permits needed for the construction and operation of projects is required, including those identified in the DNSH criteria of the EU Taxonomy. Taking into consideration the provisions of the InvestEU Regulation and of this guidance, the legal compliance is a prerequisite for any financing or investment operation qualifying to receive InvestEU support.

The other DNSH criteria that do not refer to environmental legislation should be used, when in force, as a reference for proposing mitigation measures or to identify projects inconsistent with the achievement of climate objectives – to the extent possible and on a best effort basis – for the cases where proofing is required in line with this guidance (for both direct and indirect financing, as further detailed in Chapter 2 and Chapter 3).

In practice, the following steps should be taken:

1. Based on InvestEU screening, the implementing partner determines whether proofing is needed for a certain criteria/dimension

2. Check if the activity is covered by the EU Taxonomy (16)

3. Check if there are DNSH criteria for the activity

4. Use the DNSH criteria, on a best effort basis, to propose additional mitigation measures, if needed.

All InvestEU financing and investment operations (17), for both direct and indirect financing, should meet the following four conditions based on the DNSH criteria to climate change mitigation and the Minimum Social Safeguards (‘MSS’), with a clear view of not altering the overall eligibility criteria of InvestEU, as defined in the InvestEU Regulation and the Investment Guidelines. The four conditions are set out in the bullet points below:

— For projects covering the following activities: anaerobic digestion of bio-waste; landfill gas capture and utilisation – a monitoring plan should be put in place for methane leakage at the facility.

— For projects covering transport of CO2 and underground permanent geological storage of CO2 – a detailed monitoring plan in line with the provisions of the CCS Directive 2009/31/EC (18) and EU ETS Directive (EU) 2018/410 (19).

— For projects covering the following activities: freight rail transport; inland freight water transport; retrofitting of inland water passenger and freight transport; sea and coastal freight water transport; freight transport services by road – no InvestEU support should be granted for financing of vessels, vehicles or rolling stock specifically dedicated (20) to transport fossil fuels (such as rolling stock for mining of coal or oil tankers).

— Comply with the MSS as laid out in Article 18 of the Taxonomy Regulation (21). Those minimum safeguards do not affect the application of more stringent requirements – where applicable – that are related to the occupational, health, safety and social sustainability set out in Union law. In particular, the implementing partners/financial intermediaries should ask for confirmation from the project promoter/final recipient concerning its operations that (22): 1. The project promoter/final recipient has in place effective measures, commensurate to the nature and scale of the operation and its potential environmental and social risks and impacts, to ensure: a. respect for social rights, meaning avoidance of infringement on the social rights established in EU legislation, and addressing any adverse human rights risks and impacts caused by their operation; b. meaningful stakeholder engagement (23), including an appropriate mechanism to register and address grievances, as applicable and required by relevant legislation. 2. Its project workers (24): a. are not subjected to forced or bonded, and child labour; b. enjoy equal treatment and equal opportunity (equal remuneration for men and women for work of equal value); c. are not discriminated against based on race, colour, sex, religion, political opinion, national extraction or social origin; d. have the freedom of association (freedom to form and be members of a labour union) and the right to organise (right to organise strikes); and e. have the right to collective bargaining.

1.5. Mid-term evaluation and review of this guidance

Under Article 29 of the InvestEU Regulation the Commission must submit by 30 September 2024 to the European Parliament and to the Council an independent interim evaluation report on the InvestEU Programme. The evaluation must also cover the application of sustainability proofing. Based on the results of this evaluation and taking into consideration the developments on the financial market, the entry into force of the EU Taxonomy (25) and of the updated Non-financial Reporting Directive (NFRD) (26), the requirements described in this guidance might be modified in time (for both direct and indirect financing).

Therefore, it is highly recommended to both implementing partners and financial intermediaries to take these likely developments into consideration because they might affect future operations.

2. SUSTAINABILITY PROOFING FOR DIRECT FINANCING OPERATIONS

2.1. General principles and overall proofing approach

This chapter provides implementing partners with the methodologies and tools they need to perform the InvestEU screening and proofing of proposed direct financing and investment operations for the three sustainability dimensions, as required by Article 8(5) of the InvestEU Regulation (27). Article 8(6) gives further details regarding the objective of the guidance, which must allow to:

(a) as regards adaptation, ensuring resilience to the potential adverse impacts of climate change through a climate vulnerability and risk assessment, including through relevant adaptation measures, and, as regards mitigation, integrating the cost of greenhouse gas emissions and the positive effects of climate mitigation measures in the cost-benefit analysis;

(b) accounting for the consolidated impact of projects in terms of the principal components of the natural capital, namely air, water, land and biodiversity;

(c) estimating the social impact of projects, including on gender equality, on the social inclusion of certain areas or populations and on the economic development of areas and sectors affected by structural challenges such as the need to decarbonise the economy;

(d) identifying projects that are inconsistent with the achievement of climate objectives;

(e) providing implementing partners with guidance for the purpose of the screening provided for under paragraph 5.

Figure 1 visualises the proposed approach for InvestEU sustainability proofing of direct financing and investment operations. It covers the following steps:

— Assessment of compliance with EU and national legislation. This is a prerequisite for all operations to be financed. It will include the assessment of compliance with legal requirements under the three dimensions of the sustainability (climate, environmental, social) and can be performed throughout the proofing process in parallel with the due diligence process, if needed, and should be completed, as a general rule, before the request of the EU Guarantee. Where this is not possible, appropriate conditions should be put in the legal documentation to ensure that the project will be fully compliant with applicable legislation.

— InvestEU screening to identify potential risks and impacts on the three dimensions of the proposed operations.

— Further assessment and proofing for the relevant elements at risk under each dimension, based on identified potential risks and impacts, including the identification of mitigating measures and assessing consistency with climate objectives (28).

— Conclusion of the sustainability proofing and reporting to the InvestEU Investment Committee, to support decision making on the request for the EU Guarantee.

Figure 1

Overview of sustainability proofing approach

All operations supported by InvestEU, irrespective of their size must comply with applicable EU and national legislation. For this reason, an assessment and confirmation of legal compliance will be required for all operations.

As described in the previous chapter, thresholds apply based on the size of the total investment operation and, when below these thresholds, no further screening and proofing will be required. The exception to this rule is those projects that require an environmental impact assessment (‘EIA’) under the EIA Directive (Annex I projects or screened-in Annex II projects), where proofing for the environmental, social and climate dimensions will be required regardless of the total project cost, for the impacts identified in the EIA report (29) and building on it. Such an approach is consistent with the requirements of the Invest EU Regulation.

For projects below the threshold, implementing partners and project promoters are nevertheless strongly encouraged to assess on a case-by-case basis whether the specific investment operation: (i) presents significant potential risks under one or more sustainability dimensions; and (ii) would benefit from going through at least the screening phase described in the following sections.

To encourage the take-up of the positive agenda, the implementing partners, in cooperation with the project promoters/final recipients, are strongly recommended to consider the possibility of increasing the positive impacts of the projects they are financing, thus increasing their overall sustainability performance. Checklists have been developed to help identify opportunities to increase positive impacts (see Annex 3), to be used on a voluntary basis.

Finally, this guidance recommends performing the assessment for the three dimensions in an integrated manner paying close attention to linkages and synergies across dimensions (30).

Infrastructure projects require a relatively long period to get through all the legal procedures of permitting and authorisations. For projects where the outcome of the proofing has identified additional measures and where such projects have already received all relevant authorisations and permits, it is understood that only limited additional measures can be recommended and implemented in some cases (for example, measures that could have been implemented in earlier stages of the project development cycle cannot be implemented anymore). Therefore, the implementing partner and the project promoters will be in the situation of being able to propose only those additional measures that can be realistically accomplished for projects in such an advanced stage of development. Such situations should be specifically highlighted and properly explained in the documentation to be presented to the Investment Committee (especially if any additional measures were recommended and implemented).

To avoid confusion over the terminology used in the overall context of the InvestEU Programme (e.g. Investment Guidelines), we propose to use in this chapter the term project as defined in Chapter 1.1 when referring to the underlying operations that will be subject of InvestEU screening, and proofing (if case) (31).

2.2. Climate dimension

2.2.1. Introduction

This section covers the methodology to be followed when performing the sustainability proofing of the climate dimension in the context of InvestEU direct financing.

As required by Article 8(6) of the InvestEU Regulation, this methodology aims at providing implementing partners with the principles and tools to: (a) as regards adaptation, ensure resilience to the potential adverse impacts of climate change through a climate vulnerability and risk assessment and through the implementation of commensurate relevant adaptation measures; and (b) as regards mitigation, to assess consistency with EU climate ambitions and commitments, to integrate the cost of greenhouse gas emissions related to the proposed projects, as well as to reflect the positive effects of climate mitigation measures in the options analysis, economic appraisal and/or cost-benefit analysis.

The methodology presented in this guidance largely mirrors the methodology described in detail by the Commission notice on technical guidance on the climate proofing of infrastructure in the period 2021-2027 (‘Guidance on the climate proofing of infrastructure in the period 2021-2027’) (32). As a result, the methodology presented in this document draws on internationally recognised methodologies both for the vulnerability and climate risk assessments, and for the assessment and mitigation of GHG emissions.

This methodology aims at identifying: (i) the nature and extent to which climate change and its impacts may harm a given project in order to decide on commensurate adaptation measures; and (ii) how a project can contribute to overall targets for GHG reduction, including when the project is part of a coherent planning framework (e.g. part of an integrated urban development plan) and related investment programme. While the methodology was developed for infrastructure projects, recommended approaches and tools could be used beyond what might be considered strictly infrastructure to identify the climate-change risks a project is exposed to, or to assess the GHG emissions related to the project with respect to the EU climate objectives.

As described in the ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’, for climate change adaptation, the use of other recent and internationally recognised approaches and/or methodological frameworks (e.g. IPCC 5th Assessment Report, AR5) (33) to carry out climate risk assessments of projects remains possible in addition to the ones the guidance draws on, as they are expected to allow the user to arrive at equivalent conclusions.

For climate change mitigation, the main reference for assessing GHG emissions is the EIB Carbon Footprint Methodology (34), as recommended in the ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’. Alternatively, internationally agreed and published carbon footprint methodologies may be used. The internal methodologies of implementing partners may also be applied, provided that they are consistent with the International Financial Institution Framework for a Harmonised Approach to Greenhouse Gas Accounting (35).

Whichever methodology is applied should be openly stated. In all cases, absolute (gross) and relative (net) emissions associated with projects should be reported. The scope of reporting for a project (i.e. whether it is for the whole of the project or only a part), and the choice of baseline scenario for calculating relative GHG emissions should be made transparent.

The Paris Agreement (36) sets the internationally agreed goal for limiting the global average increase in temperature and the global goal for climate-resilient development or adaptation. The approach presented throughout this entire chapter aims at supporting the development of investment operations aligned with the goals of the Paris Agreement and the EU Climate Law, once adopted.

2.2.2. General approach to climate sustainability proofing

Climate proofing is a convenient shorthand for a process that integrates considerations of climate change adaptation and climate change mitigation into the development of existing assets and/or planned investment operations. Figure 2 illustrates the main steps of climate proofing.

Figure 2

Overview of the climate proofing process

Source: Guidance on the climate proofing of infrastructure in the period 2021-2027.

The diagram reflects the two pillars of climate proofing. The pillar to the right focuses on climate resilience and adaptation to climate change. The pillar to the left focuses on climate neutrality and mitigation of climate change.

Each pillar of analysis is divided into two phases. The first phase covers a screening step meant to identify on one side, the significance of potential climate risks for the investment under consideration (for adaptation) and, on the other side, to assess consistency with EU climate commitments and to quantify respective GHG emissions (for mitigation). The outcome of the screening phase will determine whether a second phase of further detailed assessment is needed.

For InvestEU, the focus of climate proofing for direct financing is on individual projects that are in different stages of development and that involve different types of stakeholders (public or private). Having said that, integrating climate considerations in the preparation of an investment is a continuous process that needs to be considered, whenever possible, from the beginning and then in all the phases of the project cycle (37) and the related processes and analyses.

The ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’ provides more information on the process of climate proofing over the various steps of the project cycle (38).

2.2.3. Legal compliance

In line with Recitals 8, 9 and 10 of the InvestEU Regulation, projects financed by the InvestEU Fund should contribute to achieving EU climate ambitions and commitments, including the objective of EU climate neutrality by 2050 and the Union’s new 2030 climate targets. In addition, Article 8(5) states that projects that are inconsistent with the climate objectives shall not be eligible for support under the InvestEU Regulation.

Climate change considerations are also an important component in the environmental impact assessment (‘EIA’) of a project (see following Chapter 2.3 on environmental proofing). This applies to both pillars of climate proofing, i.e. climate change mitigation and adaptation.

For the subset of investment operations requiring an EIA (Annex I or Annex II screened-in), undertaken in line with the requirements of the EIA Directive as amended, the outcome of the climate proofing will also be reflected in the EIA report. The EIA and other environmental assessments should ordinarily be planned and integrated into the project life cycle with due consideration of the climate proofing process.

Following the check against legal compliance requirements, and depending on the total project cost of the investment, the project moves on to the screening step.

For operations below the threshold of EUR 10 million that do not require an EIA (Annex II screened out or not falling under the scope of the EIA Directive) no climate proofing is required. However, to promote a positive approach to addressing climate change considerations, and to raise awareness about the climate risks (and related impacts) of the proposed investment, project promoters and implementing partners are strongly encouraged to:

— Consider performing the climate resilience screening step described in the following sections to identify potential climate-related risks to the proposed project (and related assets). Where relevant, they should also plan appropriate adaptation measures to be included in the project.

— As regards to carbon footprint assessment, implementing partners and project promoters could also perform the assessment for investment projects below the EUR 10 million threshold, particularly when: (a) there are doubts that the proposed investment could lead to emission increases/reductions above the thresholds described in Section 2.2.5.1 below; and (b) when the proposed project is part of a wider investment programme for which an overall assessment in term of GHG emissions has been performed (39).

For operations above the threshold of EUR 10 million, regardless of whether they require an EIA or not, the assessment must proceed with the InvestEU screening and proofing process, if applicable, in line with the guidelines for climate resilience and climate neutrality, as described in the following sections.

2.2.4. Climate resilience

2.2.4.1. Screening for climate resilience – adaptation to climate change

As recommended by the ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’, the screening step for climate resilience is the first step of the proofing process and it is aimed at identifying and assessing potential climate change related risks – current and future – to the projects proposed for receiving InvestEU support.

The screening assessment is broken down into three steps as follows:

The aim of the vulnerability assessment (40) is to identify the material climate hazards (41) for the given specific project type at the planned location.

The vulnerability of a project is determined by a combination of two aspects: (i) how sensitive the project’s components are to climate hazards in general (sensitivity); and (ii) the probability of these hazards occurring at the project location now and in the future (exposure). These two aspects can be assessed in detail separately (as described below) or together.

The aim of the sensitivity analysis is to identify which climate hazards are relevant to the specific type of investment, irrespective of its location. The sensitivity analysis should cover the project in a comprehensive manner, looking at the project’s various components and how the projects operate within the wider network or system.

A score of ‘high’, ‘medium’ or ‘low’ should be given for each theme and climate hazards:

— High sensitivity: the climate hazard may have a significant impact on assets and processes, inputs, outputs and transport links;

— Medium sensitivity: the climate hazard may have a slight impact on assets and processes, inputs, outputs and transport links;

— Low sensitivity: the climate hazard has no (or an insignificant) impact.

Figure 3

Analysis of sensitivity to climate hazards

Source: Guidance on the climate proofing of infrastructure in the period 2021-2027.

The aim of the exposure analysis is to identify which hazards are relevant to the planned project location, irrespective of the project type. The exposure analysis can be split in two parts: (i) exposure to the current climate; and (ii) exposure to the expected future climate. Available historic and current data for the relevant location should be used to assess current and past climate exposure. Climate model projections (42) can be used to understand how the level of exposure may change in the future. Particular attention should be given to changes in the frequency and intensity of extreme weather events.

A score (i.e. ‘high’, ‘medium’ or ‘low’) should be given for each climate hazard on current and future exposures.

Figure 4

Exposure analysis

Source: Guidance on the climate proofing of infrastructure in the period 2021-2027.

The vulnerability analysis combines the outcomes of sensitivity and exposure analyses, respectively, to identify the most relevant hazards for the proposed investment (these can be considered as those vulnerabilities with a ‘Medium’ or ‘High’ ranking).

Figure 5

Vulnerability analysis

Source: Guidance on the climate proofing of infrastructure in the period 2021-2027.

If the scores for sensitivity and exposure both rank ‘low’, or when the combined vulnerability assessment concludes – with a reasoned justification – that all vulnerabilities are deemed low or insignificant, no further (climate) risk assessment may be needed. In such cases, the InvestEU proofing process could then end here, and the results of the analysis performed must be reported with the necessary details and justifications.

If the scores for sensitivity and/or exposure (or the overall vulnerability when jointly assessed) rank ‘medium’ and/or ‘high’, then the project needs to undergo a climate risk assessment according to the methodology described in the following section.

In any case, the ultimate decision to proceed to a detailed risk assessment based on identified vulnerabilities needs to be based on a justified implementing partner’s assessment (to be done with the support of the project promoter and/or the team performing the climate assessment) of the specific situation of the proposed investment (43) (44).

For more detailed methodological guidance on the screening phase, implementing partners and project promoters shall refer to the ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’.

2.2.4.2. Climate risk assessment and adaptation to climate change

For projects whose vulnerability assessment has identified a ‘medium’ or ‘high’ potential climate risk, a detailed climate risk assessment should be carried out.

The climate risk assessment provides a structured method of analysing relevant climate hazards and their related impacts to provide information for decision-making in relation to the proposed investment. Any potential significant risks to the project due to climate change should be managed and reduced to an acceptable level by relevant and commensurate adaptation measures to be embedded in the project.

This process works by:

— assessing the likelihood and severity of the impacts associated with the hazards identified in the vulnerability assessment performed at the screening phase;

— assessing the significance of the identified potential risks for the specific investment operation;

— identifying adaptation measures to address potential significant climate risks.

The likelihood or probability looks at how likely the identified climate hazards are to occur within a given timescale, e.g. the lifetime of the project. It may be summarised in a qualitative or quantitative estimate for each of the relevant climate hazards. It is noted that the likelihood may significantly change during the lifespan of the project.

The impact (also referred to as the severity or magnitude) looks at what would happen if the identified climate hazard did occur, and what the consequences would be for the investment. This should be assessed on a scale of impact per hazard. Among other things, this assessment will typically consider: (i) the physical assets and operations; (ii) health and safety; (iii) environmental impacts; (iv) social impacts; (v) financial implications; and (vi) reputational risk. The assessment needs to cover the adaptive capacity of the project and the system in which it operates, e.g. how well the project can cope with the impact and how much risk it can tolerate. It also needs to consider how fundamental this investment project is to the wider network or system (i.e. criticality) and whether it may lead to additional wider impacts and cascading effects.

The significance level of each potential risk can be determined by combining the two factors of likelihood and impact. The risks can be plotted on a risk matrix to identify the most significant potential risks and those where future action is needed through adaptation measures.

Figure 6

Overview of the risk assessment

Source: Guidance on the climate proofing of infrastructure in the period 2021-2027.

Judging what is an acceptable level of risk, or what is significant and what not, is the responsibility of the project promoter and the expert team that carries out the assessment, and is specific to the circumstances of the project. In any case, this assessment should always be described in a clear and logical manner, and coherently integrated into the overall risk assessment for the project. This information is also very important for the implementing partner because the materialisation of the risks will have a material impact on the proposed investment and could result in the default of the supported operation.

If the risk assessment concludes that there are potential significant risks to the project due to climate change, these risks must be managed and reduced to an acceptable level (45).

Figure 7

Overview of the identification, appraisal and planning/integration of relevant adaptation options

Source: Guidance on the climate proofing of infrastructure in the period 2021-2027.

For each significant risk identified, relevant adaptation measures must be considered and assessed. Adaptation will often involve adopting a combination of structural measures (e.g. changes to the design or specification of physical assets and infrastructure, or the adoption of alternative or improved solutions) and non-structural measures (e.g. land-use planning, enhanced monitoring or emergency response programmes, staff training and knowledge sharing, development of strategic climate risk assessments, financial solutions such as insurance).

Different adaptation options should be assessed to find the right measure or mix of measures or even consider deferred implementation timings (flexible/adaptive measures), that can be implemented to reduce the risk to an acceptable level. The preferred measures should then be integrated into the project design and/or its operation to enhance its climate resilience (46).

Finally, as a good management practice, it is recommended to the project promoter to undertake ongoing monitoring throughout the operational lifetime of the investment in order to: (i) check the accuracy of the assessment and feed into future assessments and projects; and (ii) identify whether specific trigger points or thresholds are likely to be reached, indicating the need for additional adaptation measures.

2.2.5. Climate neutrality and mitigation (47) of climate change

2.2.5.1. Screening for climate change mitigation

Mitigation of climate change means making efforts to reduce GHG emissions or increase sequestration of GHGs. These efforts are guided by EU emission reduction targets for 2030 and 2050. Meeting the EU targets, and globally the goals of the Paris Agreement, requires a fundamental shift in our economies from high-carbon activities to the deployment of low-carbon and net-zero solutions such as renewable energy and CO2 sequestration, in combination with significant advances in energy and resource efficiency. The principle of ‘energy efficiency first’ emphasises the need to prioritise alternative cost-efficient energy efficiency measures when making investment decisions, in particular cost-effective end-use energy savings, etc. (48). The quantification and monetisation of GHG emissions can support investment decisions based on that principle.

To verify and assess the compatibility of proposed projects with EU climate neutrality objectives, implementing partners and project promoters may use, to the extent possible, the ‘do no significant harm’ criteria to climate mitigation of the EU Taxonomy Regulation. Alternatively, the implementing partners and project promoters could make reference to the Paris alignment low-carbon criteria of the EIB, as published in the EIB Climate Bank Roadmap, or they could apply another internationally recognised and published methodology for assessment of Paris alignment with the low-carbon goals.

In addition, many projects supported by InvestEU in the period 2021-2027 will involve assets with a lifespan that extends beyond 2050. Therefore, expert analysis is needed to verify whether the project is compatible with, for instance, operation, maintenance and final decommissioning in the overall context of net-zero GHG emissions and climate neutrality. The early and consistent attention to the emission of greenhouse gases in the various development stages of the projects will help with the mitigation of climate change. A range of choices – in particular during the planning and design stages – may affect the project’s total GHG emissions over its lifespan from construction and operation until decommissioning.

In this context, the screening of an InvestEU operation with regard to GHG emissions aims to identify if a proposed project must undergo a carbon footprint assessment. This is relevant for determining the need for a deeper assessment in this respect and for the inclusion of monetary values of such externalities in the economic appraisal of the investment.

While CO2 emissions should be estimated for all projects, Table 1 below provides an indication of those project categories where it is expected that the emissions would most likely be significant, or not, as the basis for performing the InvestEU screening.

In line with the ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’, InvestEU projects will have to perform a carbon footprint assessment if are likely to entail:

— Absolute emissions greater than 20 000 tonnes CO2e/year (positive or negative)

— Relative emissions greater than 20 000 tonnes CO2e/year (positive or negative)

In this respect, the project categorisation presented in Table 1 is for guidance only.

Implementing partners and project promoters may use a quantitative assessment, expert knowledge based on previous projects or other published sources to determine whether a project is likely to be above or below the thresholds presented above. Where there is uncertainty, then a carbon footprint calculation should be undertaken to assess whether the project is likely to be above or below the thresholds.

Table 1

Screening list for carbon footprint – indicative examples of project categories

Screening: Categories of projects In general, depending on the scale of the project, a carbon footprint assessment WILL NOT be required for these categories, unless it is expected that the project will be leading to significant emissions of CO2 or other greenhouse gases. — Telecommunications services — Drinking water supply networks — Rainwater and wastewater collection networks — Small scale industrial wastewater treatment and municipal wastewater treatment — Property developments (49) — Mechanical/biological waste treatment plants — R & D activities — Pharmaceuticals and biotechnology — Any other project category or scale of project for which it is clear and can be confirmed without doubt that the absolute and/or relative emissions are below 20 000 tonnes CO2e/year (positive or negative) (50) In general, carbon footprint assessment WILL be required — Municipal solid waste landfills — Municipal waste incineration plants — Large wastewater treatment plants — Manufacturing Industry — Chemicals and refining — Mining and basic metals — Pulp and paper — Rolling stock, ship, transport fleet purchases — Road and Rail infrastructure (51), urban transport — Ports and logistic platforms — Power transmission lines — Renewable sources of energy — Fuel production, processing, storage and transportation — Cement and lime production — Glass production — Heat and power generating plants — District heating networks — Natural gas liquefaction and re-gasification facilities — Gas transmission infrastructure — Any other project category or scale of project for which the absolute and/or relative emissions could exceed 20 000 tonnes CO2e/year (positive or negative)

Source: Guidance on the climate proofing of infrastructure in the period 2021-2027.

Projects with expected emission levels above the thresholds must be further assessed in the following phase of the climate mitigation proofing (52).

2.2.5.2. Carbon footprinting and monetisation of GHG emissions

As described above, mitigation of climate change is about reducing GHG emissions and limiting global warming. Projects and other types of investments can contribute to this, for instance, through the design and selection of low-carbon alternatives.

In this guidance, carbon footprinting is used not only to estimate the GHG emissions of an investment when it is ready for implementation, but equally importantly to support the consideration and integration of low-carbon solutions during the planning and design stages, including at the stage of ranking and selection of alternative investment options, with a view to promoting low-carbon considerations and solutions (53). It is therefore recommended that climate proofing is integrated from the outset in the preparation of the proposed investments, and that estimates of GHG emissions linked to the investment are duly considered also in the options analysis and in the Economic Appraisal or Cost-Benefit Analysis.

For projects where the InvestEU screening has identified the potential for significant absolute and/or relative emissions, implementing partners will be asked to confirm the compatibility of proposed projects with EU climate neutrality objectives and to perform (in cooperation with the project promoter) or request from the project promoter a quantification of the project’s GHG emissions, using an internationally accepted carbon footprint methodology (54).

These emissions should then be monetised and integrated in the economic appraisal and in the selection of low-carbon options, and reported to the Investment Committee as part of the sustainability proofing exercise.

The ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’ uses the EIB Carbon Footprint Methodology (55) as main reference for carbon footprint calculation. This recommended methodology includes default approaches for calculating emissions for various sectors including:

— Wastewater and sludge treatment

— Waste treatment management facilities

— Municipal solid waste landfill

— Road transport

— Rail transport

— Urban transport

— Building refurbishment

— Ports

— Airports

— Forestry

As indicated above, alternative internationally agreed and documented carbon footprint methodologies can also be used, provided that minimum requirements are respected as highlighted in Chapter 2.2.1.

For a more detailed treatment of the carbon footprint methodology, implementing partners are encouraged to consult the ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’.

Carbon footprinting involves many forms of uncertainty, including uncertainty about the identification of secondary effects, about the baseline scenarios and baseline emission estimates. Therefore, greenhouse gas estimates are by definition approximate. Uncertainties inherent in greenhouse gas estimates or calculations should be reduced as far as is practical, and estimation methods should avoid bias.

Where uncertainty exists, the data and assumptions used to quantify greenhouse gas emissions should be conservative. Conservative values and assumptions are those that are more likely to overestimate absolute emissions and ‘positive’ relative emissions (net increases), and underestimate ‘negative’ relative emissions (net reductions).

Once GHG emissions have been quantified, they should be monetised and included in the economic appraisal of the proposed investment operation. This monetisation should be carried out by using an established and internationally agreed ‘shadow cost of carbon’. The application of a shadow cost of carbon to the change in emissions resulting from a project has the effect of monetising its carbon intensity and rewarding projects that lead to emission reductions.

This guidance recommends the use of the shadow cost of carbon recently set out by the EIB as the best available evidence on the shadow cost of meeting the temperature goal of the Paris Agreement (i.e. the 1,5 C target) (56). This recommendation is in line with the ‘Guidance on the climate proofing of infrastructure in the period 2021-2027’, and it helps to ensure comparability of data between different projects presented for approval to the Investment Committee.

For the individual years in the period from 2020 to 2050, the shadow cost of carbon is indicated in Table 2.

Table 2

Shadow cost of carbon for GHG emissions and reductions in EUR/tCO2e, 2016-prices

Year EUR/tCO2e Year EUR/tCO2e Year EUR/tCO2e Year EUR/tCO2e 2020 80 2030 250 2040 525 2050 800 2021 97 2031 278 2041 552 2022 114 2032 306 2042 579 2023 131 2033 334 2043 606 2024 148 2034 362 2044 633 2025 165 2035 390 2045 660 2026 182 2036 417 2046 688 2027 199 2037 444 2047 716 2028 216 2038 471 2048 744 2029 233 2039 498 2049 772

Source: Guidance on the climate proofing of infrastructure in the period 2021-2027.

The abovementioned abatement cost of carbon represents the minimum recommended value to be used to monetise GHG emissions. The use of higher values for the cost of carbon will be allowed (57), for instance when such values are used in a specific Member State or by the implementing partner concerned. Furthermore, the shadow cost of carbon may be adjusted when more information becomes available.

The monetary evaluation of the climate change impacts delivered by the project fits into the more comprehensive economic appraisal that is usually carried out by IPs. More information on how to include monetised GHG emissions in the Economic Appraisal expected for InvestEU investments is provided in Chapter 2.6.

2.2.6. Reporting and monitoring

The results of the climate resilience proofing should be reported by the implementing partner as part of the documentation to be presented to the Investment Committee on the outcome of the overall sustainability proofing as further developed in Chapter 4.2.2.

For climate adaptation, this should cover a summary of the outcome of the process performed, with clear conclusions on identified potential climate change risks to the investment, and should describe:

— The methodology used for the climate resilience proofing, concisely specifying the sources of data and information used in the assessment;

— The steps followed and possible uncertainties in the underlying data and analysis;

— The project development stage at which the vulnerability and risk assessment was undertaken; and

— Related adaptation measures identified and included in the investment scope to reduce risks to acceptable levels, if applicable.

The vulnerability and risk levels must be supported by detailed explanations to qualify and substantiate the assessment conclusions. The level of detail of the risk assessment will depend on the scale of the project (its type, size and relative importance) and the project development stage. For each significant risk identified, the documentation shall also present how the preferred adaptation measure(s) have been or will be integrated into the project design and/or its operations to enhance its resilience at the relevant development stages.

The documentation must also present the outcome of the proofing on climate mitigation aspects, if applicable, clarifying how it was performed. For those projects that underwent a full climate mitigation assessment, the IP shall also report on:

— Compatibility of proposed projects with EU reduction targets;

— Methodology used to estimate and monetise GHG emissions, the scope of reporting (i.e. what project components are included/excluded from the calculation) and details of the baseline scenario used;

— The quantification of the investment’s absolute (gross) and relative (net) GHG emissions

— The carbon prices used to monetise the quantified GHG emissions, and how the monetisation of GHG emissions was included in the overall economic appraisal of the investment.

During the operation phase of the investment, it is recommended to the project promoter to revisit the climate proofing and underlying assumptions and crosscheck with relevant observations, latest climate science, projections and data, and adjusted climate policy objectives, and report findings to the implementing partner.

2.3. Environment dimension

2.3.1. General approach to environmental proofing

Environmental proofing for InvestEU refers to a method for accounting for the consolidated impact of a project in terms of the principal components of natural capital, namely air, water, land (58) and biodiversity, as required by Article 8(6) of the InvestEU Regulation. This includes positive and negative impacts, whether they be direct or indirect.

Natural capital yields a flow of ecosystem services or benefits (59). These services can provide economic, social, environmental, cultural, or other welfare benefits. The value of these benefits can be understood in qualitative or quantitative (including in monetary) terms, depending on their context.

An explanation of key environmental terms considered for the purposes of proofing is provided below:

— Natural capital: It is another term for the stock of renewable and non-renewable resources (e.g. plants, animals, air, water, soils, and minerals). Projects can affect both the extent of these resources (e.g. by changing land use) and their quality (e.g. the condition of habitats).

— Ecosystem services: Natural capital provides ecosystem services, such as food, timber, clean air, clean water, climate regulation and recreation.

— Impacts: They are changes in the natural capital or in the ecosystem services it provides. Natural Capital accounting involves measuring these impacts to improve how they are taken into account in decision-making: — Through quantification, often as flows. For example, water abstraction affects the stock of water and can affect the future availability of water over time (this can be measured in m3/year). Another example is the discharge of pollutants, which affects the condition of air or water (and can be measured in the exceedance of limit values per day). Changes to land use is another quantifiable flow: this can affect the number of recreation trips made to a site (number of trips per year) or the reduction in enjoyment from those trips (level of enjoyment per trip). — Where proportionate (possible and reasonable), by expressing the impacts in monetary terms. Monetary valuation helps to convert impacts to estimated damage costs (or benefit estimates), such as: (i) the value of water no longer available for use (expressed in EUR per m3 per year); (ii) costs incurred due to increased health issues from air pollution (expressed in EUR per disease case per year); or (iii) the loss of biodiversity (in EUR terms).

Table 3 provides examples of the links between natural capital and impacts.

Table 3

Linking impacts to relevant changes in the physical environment and damages or benefits

Natural capital Changes in natural capital or ecosystem services Examples of Impacts (positive and negative) Air Air pollution Volume of pollutants emitted — Impacts on human health — Impacts on buildings (e.g. corrosion) Water Water pollution Volume of pollutants discharged — Impacts on human health — Impacts on the quality of inland or marine waters Water consumption Volume of water abstracted — Impacts on water-dependent activities — Impacts on water-dependent physical environments — Impacts on the hydrological cycle (e.g. flooding, low flow events) Land Waste generation Quantity of waste generated — Impacts on waste management costs — Impacts on the physical environment (e.g. due to landfill or emissions from incineration) and hence flows Change in land use Hectares of land use developed or intensified — Changes in outputs and materials from land — Changes in carbon sequestration and storage — Changes in the costs of providing services that would have been provided naturally — Impacts on in-situ and outdoor interactions — Changes in the cultural value of land Biodiversity Effects on species Proportion of species affected, level of threat and/or protection of species affected — Changes in the local population and conservation status of species — Changes in the value of genetic resources (may be opportunity cost) — Changes in the costs of providing services that would have been provided naturally (e.g. pest control) — Changes in the cultural value of species Effects on habitats and ecosystems Area of habitat or ecosystem lost or in reduced condition — Changes in conservation status of habitat or condition of ecosystem (60) — Changes in outputs and resources from land and sea — Changes in the costs of providing services that would have been provided naturally — Changes in the cultural value of land and sea — Changes in resilience (for example natural disasters)

Source: Technical Support Document for Environmental Proofing of Investments under the InvestEU Programme.

In line with Chapter 2.1, the approach to sustainability proofing for the environmental dimension is based on several steps. These steps include a decision point (based on the level of risk identified on one or more elements during the screening of a project) where it can be decided that no further proofing is required for impacts of potentially low risk (i.e. impacts unlikely to be significant) (61).

For projects requiring an EIA (Annex I or screened-in Annex II project), the implementing partner will:

— Review the identified impacts and risks and the proposed measures to avoid, prevent or reduce (mitigation measures) and, as a last resort, offset (compensation measures) likely significant negative impacts on the environment. The above should be available in the EIA report and other documentation such as permits, additional studies or reports from other assessments.

— Review that an assessment has been carried out of the risks of any significant negative impacts remaining after mitigation (i.e. the residual impacts should have been assessed as part of the EIA report): — Where medium-risk and/or high-risk residual impacts have been identified in the EIA report, then the implementing partner should conduct proofing of those significant negative. Where feasible, the proofing should include quantification and monetisation. This further assessment could trigger additional (compensation/offset) measures as explained later in the chapter. — Where the residual impact has been assessed as low risk in the EIA report, no further proofing is necessary.

For projects screened out with mitigation measures, the implementing partner will:

— Review the identified impacts and risks and the mitigation measures proposed in the screening decision and supporting documentation, to avoid or prevent what might otherwise have been significant negative impacts on the environment: — Where medium-risk and/or high-risk residual impacts have been identified (e.g. in the screening documentation or during the review process), proofing of those significant negative impacts should be carried out. Where feasible, the proofing should include quantification and monetisation. — Where only low-risk residual impacts have been identified, no further proofing is necessary.

For projects screened out without mitigation measures and for projects outside the scope of the EIA Directive, the implementing partner will:

— In cooperation with the project promoter, recognise whether there is a need for additional studies or reports and review the impacts and risks identified in those additional studies and reports, and consider possible mitigation measures to avoid or prevent what might otherwise have been significant negative impacts on the environment.

— Where proportionate (possible and reasonable), quantify and monetise the identified impacts.

For all projects:

— The implementing partner is strongly recommended to use the positive checklist to identify possibilities to improve the performance of the project.

— The implementing partner must report to the InvestEU Investment Committee and monitor the project.

It is necessary to ensure consistency in what is required across the different natural capital components, while also taking into account the need for proofing to be proportionate (possible and reasonable). When reviewing projects for financing with support from the InvestEU Fund, the implementing partner will carry out these assessment steps on the basis of documentation provided by the project promoter (i.e. environmental reports, decisions, permits). This documentation may be complemented by questionnaires completed by the project promoter (e.g. based on the implementing partner’s own due diligence procedures) or other studies and reports, as considered necessary.

Finally, legal compliance is a requirement for all projects.

Figure 8

Outline of Environmental Screening – Proofing

The following sections provide guidance on how implementing partners, with the support of the project promoter, could address each individual step of the assessment.

2.3.2. Legal compliance

All InvestEU supported operations, whether subject to sustainability proofing or not, must comply with applicable EU and national legislation. Legal compliance is a prerequisite for any support. Implementing partners must put in place or review their existing procedures to verify (62) such compliance.

To ensure that all implementing partners apply acceptable standards, this section:

— outlines general principles for the legal compliance checks; and

— proposes specific checks for compliance with key EU environmental directives.

The general principles are listed in the bullet points below:

— The required legal compliance will follow the progress of the due diligence process as normally applied by the implementing partner (63).

— It is recommended that projects belonging to categories listed in Annex I of the EIA Directive and Annex II projects that require an EIA (i.e. projects with significant and/or likely significant impacts), both be considered for InvestEU financing when they are at a reasonably mature stage. This will enable the implementing partner to perform most of the compliance checks before funds are committed. In exceptional cases, flexibility on this recommendation could be possible and projects could be considered for financing at an earlier stage. In such exceptional cases, the finalisation of the procedures and fulfilment of the compliance requirements would then be a condition for the relevant disbursement (64). However, projects listed in Annex I of the EIA Directive can be presented to the Investment Committee only when they are at a reasonably mature stage, meaning the EIA report is finalised and the public consultation is completed.

— In the exceptional cases of non-mature projects (e.g. projects without completed environmental assessments and/or permitting procedures) a project would have to be assessed on the basis of the available information. As a first step, this assessment could be limited to identifying the applicable key environmental directives, and securing a clear indication on when the legal compliance could be confirmed. For projects listed in Annex II of the EIA Directive, as a general rule, the screening decision by the competent authorities should be available at the moment the project is submitted for approval to the Investment Committee. However, in duly justified cases, the project may be more immature (e.g. low risks expected, as for example in the case of charging station projects). In such cases, the proofing can be performed by the implementing partner using only the checklists proposed in this guidance. For potentially problematic projects (e.g. because of their likely significant effects on Natura 2000 sites or public opposition), project specific environmental conditions should be proposed by the implementing partner and included in the financing contract. Irrespectively of the project specific conditions (if required), as already mentioned, the financing contract should always include, for such immature projects, a standard general condition regarding the submission of missing assessments and/or permits. These conditions must be met at the latest before the relevant disbursement and the legal compliance check should be completed at that stage and reported to the Investment Committee (65). If the assessment concludes that the project is too immature and carries too many risks, then the project should not receive support and the implementing partner should apply at a later stage for the EU Guarantee.

— EU environmental directives as transposed into national legislation should be the main reference point for carrying out legal compliance checks.

— The completed check for a project’s compliance with the applicable EU environmental legislation should result in a clear-cut answer on whether it is ‘compliant’ or ‘non-compliant’. This check should be supported with proof in the form of permits, approvals, licences or permissions provided by competent authorities with reference to either relevant directives or transposed national legislation.

— If there are serious doubts on whether a project complies with EU and/or national legislation, implementing partners should consult Member States and/or the Commission (66).

The following sub-sections discuss the key environmental directives for the legal compliance checks.

(a) The EIA Directive

The EIA Directive applies to a wide range of public and private projects, which are set out in Annexes I and II to this Directive:

— Mandatory EIA: All projects listed in Annex I are considered as having significant effects on the environment and therefore require an EIA.

— EIA following determination by Member States (screening): For projects listed in Annex II, the national authorities must determine whether the project shall be made subject to an EIA. This decision is made through the ‘screening procedure’, which determines the effects of projects on the basis of thresholds/criteria or a case-by-case examination. The national authorities have to take into account the criteria laid down in Annex III of the EIA Directive.

The EIA compliance check should confirm the project’s fulfilment of the key requirements of the EIA Directive. In this respect, it is important to note that a few projects might still have been authorised under the previous ‘non-revised’ EIA regime (Directive 2011/92/EU) and not under the ‘revised’ current EIA regime (Directive 2011/92/EU modified by Directive 2014/52/EU of the European Parliament and of the Council (67)). The EIA compliance check should be made against the applicable Directive in force at the time the EIA process was triggered (see in detail Article 3 of Directive 2014/52/EU).

Checklist 0 (see Annex 3) proposes a list of questions to guide implementing partners in the verification of compliance with the EIA Directive.

(b) The Birds and Habitats Directives

The Natura 2 000 network was set up pursuant to the Habitats Directive (68). Under this Directive, Member States must designate Special Areas of Conservation (SACs) to ensure the favourable conservation status of: (i) habitat types listed in Annex I to the Directive throughout their range in the EU; and (ii) species listed in Annex II to the Directive throughout their range in the EU. Under the Birds Directive (69), the network must include Special Protection Areas (SPAs) designated for 194 particularly threatened species and all migratory bird species.

Any plan or project likely to have a significant effect on a Natura 2000 site, either individually or in combination with other plans or projects, must undergo an appropriate assessment by the Member State (pursuant to Article 6). This assessment must determine the project or plan’s implications for the site, in view of the site’s conservation objectives (70). The competent authorities can only agree to the plan or project after having ascertained that it will not adversely affect the integrity of the site concerned (Article 6(3) of the Habitats Directive (71)).

In exceptional circumstances, a project may still be allowed to go ahead, in spite of a negative assessment, if: (i) there are no alternative solutions; and (ii) the plan or project is considered to be justified by imperative reasons of overriding public interest, including those of a social or economic nature. In such cases, the Member State must take appropriate compensatory measures to ensure that the overall coherence of the Natura 2000 network is protected (Article 6(4) of the Habitats Directive). The Commission must be informed about these measures via a standard notification form ‘Information to the European Commission according to Article 6(4) of the Habitats Directive’ (72). In certain cases, when a priority habitat or species is significantly affected and the project is justified for socioeconomic reasons, an opinion of the Commission is required. Methodological guidance on the provisions of Articles 6(3) and 6(4) of the Habitats Directive 92/43/EEC (73) includes further information to supplement this section.

For implementing partners, when checking compliance with the Habitats and Birds Directives, three scenarios are possible:

— a project has been screened out by Member State authorities from requiring an appropriate assessment (i.e. the project is not likely to have significant negative effects on Natura 2000 site/s); or

— a project has been subject to an appropriate assessment by the Member State authorities, which resulted in a positive conclusion being given by the authorities, that the project will not have significant effects on Natura 2000 site/s (under Article 6(3) of the Habitats Directive); or

— a project has been subject to an appropriate assessment, which resulted in a negative conclusion from the Member State authorities (i.e. the project has significant negative effects on Natura 2000 sites under Article 6(4) of the Habitats Directive).

Checklist 0 (see Annex 3) proposes a list of questions to guide the verification of compliance with the Habitats and the Birds Directives, depending on the scenario (as described above) applicable to an individual operation.

(c) The Water Framework Directive

The Water Framework Directive (2000/60/EC) ensures the full integration of the economic and ecological perspectives in the management of water quality and quantity. The Directive applies to fresh, coastal and transitional waters and ensures an integrated approach to water management that respects the integrity of whole ecosystems.

The Directive’s key objective is to achieve (by 2015 (74)), good status for the over 111 000 surface waters (e.g. rivers, lakes, coastal waters) and the over 13 000 groundwaters in EU territory. Achieving ‘good status’ means securing good ecological and chemical status for surface waters and good quantitative and chemical status for groundwaters (groundwaters are the main sources for abstraction of drinking water).

The Water Framework Directive also introduces a requirement that river management be based on river basins (i.e. the natural geographical and hydrological unit) and not on administrative or political boundaries. The River Basin Management Plan details how the objectives set for the river basin (ecological status, quantitative status, chemical status and protected area objectives) are to be reached within the timescale required.

For implementing partners, there are two scenarios possible when checking compliance with the Water Framework Directive:

— In the first scenario, the project involves a new modification to the physical characteristics of a surface water body or alterations to the level of groundwater bodies that will NOT cause deterioration in the status of a water body or cause failure to achieve good water status/potential. In this case, the implementing partner must review the justification provided by the project promoter to support this conclusion.

— In the second scenario, the project involves a new modification to the physical characteristics of a surface water body or alterations to the level of groundwater bodies which deteriorate the status of a water body or cause failure to achieve good water status/potential. In such cases, the implementing partners should review whether each of the conditions under Article 4(7) have been fulfilled, i.e.: — all practicable mitigation measures were taken to mitigate the negative impacts; — the benefits of the project outweigh the benefits of achieving the objectives of the Water Framework Directive and/or the project is of overriding public interest; — there are no significantly better environmental options to achieve the project’s objective which are technically feasible and not disproportionately costly; and — the project and the abovementioned justifications are included in River Basin Management Plan (RBMP).

Checklist 0 (see Annex 3) proposes questions to guide the verification of compliance with the Water Framework Directive.

(d) Other relevant Directives

Depending on the nature of operations falling under a specific line of support, implementing partners are expected to verify compliance with specific directives, on the basis of authorisations, permits, licences, etc. provided by the project promoters. These could include:

Directive 2001/42/EC (75) – the Strategic Environmental Assessment

In case of some environmentally sensitive operations because of their nature, size or location, it is advised that the implementing partner reviews whether a project is consistent with a planning framework (e.g. a sectoral or a land-use plan), in particular as regards alternatives or cumulative effects.

Directive 2010/75/EU (76) – the Industrial Emissions Directive

The implementing partner should confirm the project’s compliance with the Industrial Emissions Directive on the basis of:

— A permit (not always applicable and available at the time of the submission of the application): i.e. whether it complies with the Emission Limit Values set according to the Directive and with Associated Emission Levels set in implementing decisions on Best Available Techniques (BAT-AELs), as appropriate; or

— The environmental project documentation submitted as part of the application (e.g. environmental permits, etc.).

Directive 2008/98/EC (77) – the Waste Framework Directive

The implementing partner will verify the project’s compliance with the Waste Framework Directive including the justification with reference to key requirements of the Directive. In particular, the justification needs to explain:

— how the project is consistent with the waste hierarchy (Article 4);

— how the project contributes to the achievement of the preparing for re-use and recycling targets (Article 11(2)).

— whether the project is consistent with the relevant waste management plan (and is included in it as a sine qua non condition) and waste prevention programme (Articles 28 and 29).

Directive 2012/18/EU (78) – the Seveso-III Directive

The Seveso-III Directive (2012/18/EU) aims to prevent major accidents involving dangerous substances. However, because accidents may nevertheless occur, the Directive also aims at limiting the consequences of such accidents not only for human health but also for the environment. The Directive covers establishments where dangerous substances may be present (e.g. during processing or storage) in quantities exceeding certain thresholds. Excluded from the Directive are certain industrial activities which are subject to other legislation providing for a similar level of protection (e.g. nuclear establishments or the transport of dangerous substances).

Depending on the amount of dangerous substances present, establishments are categorised into a lower or upper tier, with the latter being subject to more stringent requirements. The implementing partner will verify compliance of the project with the Seveso-III Directive on the basis of the environmental project documentation submitted as part of the application (e.g. EIA, environmental permits, etc.). In particular, the implementing partner will verify whether projects falling under the scope of the Seveso Directive upon completion will have to meet either the lower or upper tier requirements (in particular the obligation for the promoter to prepare a major accident prevention policy or a safety report that will have to be submitted to the competent authority of the Member State).

2.3.3. InvestEU screening for the environmental dimension

For projects that undergo an EIA or are subject to the determination of the necessity of an EIA, it is expected that this process and work will provide a key contribution to the InvestEU screening and proofing process because the Directive requires that:

— For projects requiring an EIA, a description of the features of the project and/or measures envisaged to avoid, prevent or reduce and, if possible, offset likely significant adverse effects on the environment, is part of the EIA report.

— For projects with a screening determination that an EIA is not necessary, the determination will state any features of the project and/or measures, where proposed, envisaged to avoid or prevent what might otherwise have been significant adverse effects on the environment.

For these cases, the InvestEU screening step would review the residual impacts identified in the EIA report (after mitigation measures identified during the environmental procedure) for the four environmental elements (air, water, land and soil, biodiversity), as well as for the cross-cutting themes of noise and odour.

For projects outside the scope of the EIA Directive or for projects screened out without mitigation measures as a result of the implementation of nationally set thresholds or criteria, the InvestEU screening step will also review impacts on the same elements and cross-cutting themes.

As a first step, (residual (79)) environmental impacts should be reviewed with the use of Checklist 1 (80) (see Annex 3). Column (1) of Checklist 1 should reflect the existence or absence of (residual) impacts.

As already mentioned, this review will be carried out on the basis of the environmental documentation provided by the project promoter. This documentation can include environmental assessment reports, decisions and permits, additional studies or reports if considered necessary. Once a (residual) impact is identified then this impact should be qualified in terms of risk by considering the combination of its significance and its likelihood of occurrence.

The implementing partner should use three qualifications to indicate the significance of the (residual) impact (column 2 of Checklist 1) based on information provided by the project promoter:

Minor Moderate Significant/adverse

To categorise the significance of the impact, the implementing partner will use the underlying environmental documentation, additional reports if considered necessary, as well as expert judgement considering elements such as, emission volumes, the nature of the identified impact, etc. More detailed indications for each of the natural capital elements are provided in the ‘Technical Support Document for the Environmental Proofing of Investments’, and in tables:

Table Air S3 – 1: For impacts to Air Quality Table Water S2 – 5 and Table Water S3 – 3 For impacts on the Water Environment Table Land S2 – 2 and Table Land S3 – 1 For impacts on Soil/Land Table Biodiversity S2 – 1 and Table Biodiversity S3 – 1 For impacts on Biodiversity Table CC S3 – 1 For Noise Impacts Table CC S3 – 2 For Odour Impacts

The implementing partner should also indicate, based on the information and assessments carried out by the project promoter the likelihood of the impact (column 3 of Checklist 1):

Low (not likely to happen) Moderate (even chances of happening or not) High (likely to happen)

The level of risk (column 4 of Checklist 1) for each impact will then be assessed by combining its identified significance and its likelihood (see matrix in Figure 8). For projects with EIAs, the associated reports are expected to include an assessment of the significance of the residual impacts.

Figure 9

Risk qualification for each impact identified

For medium-risk and/or high-risk impacts, the implementing partner must proceed with proofing. No further proofing will be necessary for low-risk impacts.

In addition to the above, the implementing partner is strongly recommended to proceed with a positive agenda proofing (see Chapter 2.3.5).

2.3.4. Proofing: Mitigation, Quantification and Monetisation

For projects requiring an EIA or screened out with mitigation measures: For each of the residual impacts identified as medium risk and/or high risk, the implementing partner will require the project promoter to examine (on a voluntary basis) the feasibility of additional (for instance mitigation) measures that could reduce the residual risk to a lower level.

For projects outside the scope of the EIA Directive or screened out without mitigation measures: If the implementing partner, in cooperation with the project promoter, using checklist 1, identifies medium risk and/or high risk impacts, then they should identify mitigation measures, where feasible, to reduce the risk to a lower level.

Any measures resulting from the above should follow the principles of the mitigation hierarchy relevant for the natural capital element:

— Avoidance of negative impacts (if feasible).

— Decreasing the extent of any unavoidable impacts, with consideration given to the duration, intensity and type of impact (direct, indirect and cumulative).

— Rehabilitation and restoration to ensure that stocks that have been degraded or negatively affected by a project are restored or renewed.

— Offsetting can be considered as a last resort for (medium- to high-risk) negative impacts that cannot be avoided, minimised, or balanced out through restoration.

Figure 10

The mitigation hierarchy

Source: European Commission – Technical Support Document for the Environmental Proofing of Investments.

Good mitigation is specific to context and location, and it also depends on the impact that must be mitigated. Examples of mitigation measures are presented in the ‘Technical Support Document for the Environmental Proofing of Investments’.

When the project promoter is able to propose feasible additional measures, the implementing partner should ask the project promoter to reassess the residual risk (see Checklist 1).

In collaboration with the project promoter, the implementing partner, on the basis of the existing documentation (environmental report, permits etc.), will provide, when and where available, a quantification of residual impacts that after mitigation (mitigation as a result of the environmental procedures and/or mitigation proposed in the context of InvestEU sustainability proofing) have a medium and/or high risk.

For guidance on quantification see the ‘Technical Support Document for the Environmental Proofing of Investments’ and tables:

Table Air S3 – 1: For impacts to Air Quality Table Water S3 – 3: For impacts on the Water Environment Table Land S3 – 1 For impacts on Soil/Land Table Biodiversity S3 – 1 and S3-2 For biodiversity Table CC S3 – 1 For Noise Impacts Table CC S3 – 2 For Odour Impacts

Quantification enables implementing partners to understand the magnitude of the (residual) environmental impacts after all mitigation measures have been determined and included in the proposed project. Quantification is also a prerequisite for including the monetary valuation of these impacts – where it is proportionate and reasonable to conduct such a valuation – in the project’s overall economic appraisal.

As discussed in the ‘Technical Support Document for the Environmental Proofing of Investments’ and in the ‘EC CBA Guide to Cost Benefit Analysis of Investment Projects (2014)’, the monetary valuation of environmental impacts is typically based on the concept of Total Economic Value, consisting of use and non-use values (81). Several valuation techniques, often (but not exclusively) based on surveys and/or choice experiments methods, can be used to measure it.

These techniques are usually resource-intensive (they require a large amount of project-specific data and analysis). For this reason, a benefit transfer approach is more frequently used where studies in the literature already provide country-specific reference values (i.e. unit costs) for environmental impacts that can be used in the valuation process.

Sections 4 to 8 of the ‘Technical Support Document for the Environmental Proofing of Investments’ provide a review of unit values to facilitate the use of benefits transfer for monetary valuation (82). In addition, the forthcoming ‘Economic Appraisal Vademecum’, which is being prepared by DG REGIO with the support of JASPERS, illustrates good practices in the economic assessment of environmental impacts for a number of selected sectors.

The use of monetisation depends therefore on several factors, including available data, project scale, type of impact, etc.

The applicability of these techniques is left to the professional judgement of the implementing partner/project promoter, including if and how to carry out a monetary valuation of the environmental impacts after mitigation, following the proportionality principle.

When carried out, the monetary valuation of the environmental impacts delivered by the project is then to be included in the project’s more comprehensive economic appraisal that is usually carried out by implementing partners in the context of EU supported projects, as discussed in Chapter 2.6 of this guidance (Economic Appraisal).

2.3.5. Positive agenda

Project promoters are strongly encouraged to consider the positive agenda Checklist 2 (developed for each environmental element, see Annex 3) for potential actions that could help reinforce the project’s positive effects. The voluntary positive agenda checklist can be used for all types of projects including below and above threshold, and all risk categories. As a result of the completion of the positive agenda checklist, project promoters are encouraged to propose additional actions to improve the operation’s environmental performance. When additional actions to improve the project’s environmental performance are identified and included in the project, promoters are encouraged to quantify the resulting positive impacts and – where proportionate and reasonable – monetise them for inclusion in the project overall economic appraisal.

The positive agenda checklist may include but is not limited to:

— Air (promoting energy efficiency and the use of renewables, minimising polluting emissions and the use of hazardous substances);

— Water Environment (improving fresh water and marine water quality, promoting efficient use of water, limitation of abstraction and discharge);

— Land and Soil (promoting erosion reduction, improving soil organic matter and biodiversity, reducing land degradation, remediation of contaminated sites);

— Biodiversity (conservation of biodiversity-rich and/or protected areas, restoration of biodiversity and ecosystems, increased resilience of ecosystems, control or removal of alien species, conservation of native species or genetic diversity);

— Noise (reduction of noise levels);

— Odour (reduction of odorous emissions).

2.3.6. Reporting and monitoring

As described in Chapter 4, at the end of the environmental screening and proofing process, the implementing partner is required to provide to the InvestEU Investment Committee a summary of the sustainability proofing that covers the following key elements:

— For all projects, a confirmation of the legal compliance with key EU environmental legislation (as presented in Checklist 0).

— The result of any screening exercise: — Whether there are any impacts identified as medium and/or high-risk (column 4 of Checklist 1); — Any (additional) voluntary mitigation measures for these medium- and/or high-risk impacts (column 5 of Checklist 1) and whether the risk is reduced as a result.

— The (residual) risk after any additional mitigation proposed in the context of InvestEU proofing (column 6 of Checklist 1).

— An assessment (preferably quantified) of medium and/or high-risk residual impacts (column 6 of Checklist 1) and also where proportionate (i.e. reasonable and possible), monetisation of these impacts.

— Any considerations in relation to the positive agenda (see Checklist 2).

In the context of the monitoring required under InvestEU, the implementing partner should confirm and report, based on monitoring performed as part of their internal procedures and/or requested to the project promoters:

— Any significant changes to the proofing outcome, as originally reported that would come as a result of the completion of permitting procedures.

— The implementation of mitigation measures linked to adverse and high-risk impacts.

— The fulfilment of environmental conditions and undertakings, if any, by the project promoter.

2.4. Social dimension

2.4.1. General approach to social sustainability proofing

InvestEU financing and investment operations aim at generating positive social impact for the society at large. However, there may also be projects that involve adverse impacts for some individuals or communities. For example, there could be an infrastructure project that has potential impacts on enhancing spatial inequalities or public health, involving land use change and/or impacts on different aspects of the life of citizens. Potential effects negatively affecting social conditions should be identified as early as possible, and if feasible, the design of those projects should be adjusted to avoid or minimise these impacts, and/or appropriate mitigation measures should be identified to manage the unavoidable impacts. The proofing process will make sure these situations are identified, assessed, and properly addressed by the project promoters.

Industry standards for assessing the social dimension are largely aligned with each other. Nevertheless, they still vary slightly among different market players. As much as possible, the initial screening of operations should aim to identify direct, indirect and cumulative impacts on essential social aspects. Social proofing, i.e. improvement of the initial proposal, would help to minimise detrimental impacts and maximise social dimension benefits whenever needed.

To achieve this, the review of the projects’ social aspects should include at a minimum the following key components:

— Screening and determining the positive impacts of the projects and associated risk;

— Categorisation of risks for directly financed projects above the threshold, based on an assessment of potential negative impacts;

— Screening the projects’ social performance based on the social screening criteria described in the following sections, and including any conditions for the project if necessary;

— Recommendations for enhancing positive social impacts based on the positive agenda checklist described in Chapter 2.4.6 of this guidance.

The following flowchart shows the social sustainability proofing process in its entirety.

2.4.2. Legal compliance framework for the social dimension

By conception and design, InvestEU will also contribute to the social sustainability in the EU, fostering the renewal of the economy, the generation of quality jobs and improved living and working conditions. EU and Member State legal requirements for projects and operations to be supported under any of the InvestEU Fund windows are the safeguard foundation for achieving socially sustainable impacts.

Similarly as for the environmental aspects, the relevant social legislation presents a solid basis for the social sustainability proofing process. The EU has a strong legislative framework that guarantees the rights of Europeans as citizens, workers (regardless of their nationality), and stakeholders in many areas, including occupational safety and health, working conditions, information disclosure and consultations with workers and the public, gender equality, and non-discrimination (83). However, compared to the environmental legislation, the powers of the EU in the social field are more limited, and social aspects are primarily addressed through national legislation. Nevertheless, the InvestEU Regulation specifically requires to estimate social impact of projects, including on gender equality, on the social inclusion of certain areas or populations and on the economic development of areas and sectors affected by structural challenges such as the need to decarbonise the economy.

Therefore, taking into consideration compliance with the relevant national and EU legislation covering these areas, looking for achievement of social progress by means of InvestEU interventions will be the foundation for the social sustainability proofing. Examination of compliance will continue throughout the process as all relevant legal requirements may not be known at the early stage (see the legal compliance framework in Annex 1) (84). For t