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Compliance with the environmental standards in the NGEU recovery plan and possible mitigation of climate change litigation risk – an Italian perspective

Friday 28 April 2023

Luigi Mazzoncini; Silvia Cossu; Bianca Almacolle 
Lipani Catricalà & Partners, Rome
 

Fighting climate change and the ‘Do No Significant Harm’ principle 

The world is now facing effects of climate change, and the consensus on the importance of adopting a sustainable and environment-friendly growth model is slowly increasing almost everywhere. 

In keeping with this perspective, European institutions have adopted a series of concrete measures to (try to) mitigate climate change: first and foremost, the European Green Deal, a package of policy initiatives which aims to set the EU on the path to a green transition, with the goal of reaching climate neutrality by 2050. 

To ensure the effective achievement of these ambitious goals, European institutions involve national governments by linking their funding allocation – and especially EU-funded public procurement procedures – to climate innovation tools and selecting the projects to be financed on the basis of their environmental impact. 

This idea was put into practice with NextGenerationEU (NGEU) - the €806.9 billion recovery plan agreed by the European Council to support the EU Member States in recovering from the COVID-19 pandemic. 

The structure of the NGEU is quite simple. Every Member State had to submit its national Recovery and Resilience Plan (RRP) – a set of measures and investments to be implemented in the focus areas set by the NGEU – including targets, milestones, and estimated costs, which eventually have to be approved by the European Council. Once the RRP has been approved, it is up to each Member State to carry out concrete measures and investments within the prescribed period.

The European Commission’s intent was to strongly link the NGEU to the need to fight climate change, with the objective of reducing greenhouse gas emissions by supporting the energy and ecological transition. In particular, a target of 37 per cent of expenditures from the NGEU will be reserved for initiatives aimed at climate change mitigation. 

Moreover, all the measures and investments financed with NGEU funds must respect the ‘Do No Significant Harm’ principle (‘DNSH’). This first means that NGEU funds cannot be used to support or carry out economic activities that significantly harm any environmental objective within the meaning of Article 17 of the Taxonomy Regulation (a classification system establishing a list of requirements for economic activities to be considered environmentally sustainable). 

Member States must ensure compliance with the DNSH principle on two different levels: (a) in the preliminary phase, by assessing the types of actions defined in the program for their potential to significantly harm these environmental objectives, and (b) in the implementation phase, when they must put in place selection procedures that are sufficiently detailed and compatible with applicable EU environmental law. 

In order to ensure compliance with European environmental law, all the measures must therefore respect a detailed list of requirements imposed on different levels – by the European Commission, by the Member State and by the single local administration or government body managing the specific project.

The concrete standards to ensure that each RRP measure complies with the DNSH principle are then set on a national basis. For instance, the Italian State General Account Department has published an operational guide containing a very detailed list of requirements that the public administrations involved in the implementation of the RRP must include in their relevant calls for tender.

The applicable standards will depend on each RRP measure’s particular field of implementation: for instance, according to the Italian State General Account Department, measures involving hosting and cloud IT services must ensure that the selected cloud services provider has an UNI EN ISO 14001 or EMAS certification, that it adheres to the European Code of Conduct for Data Center Energy Efficiency, that it complies with the disclosure obligations concerning global-warming potential set by European law, etc.

DNSH compliance as best standard and practice to mitigate the risk of involvement in climate change litigation

Compliance with the DNSH principle, both by States and private economic operators, may mitigate the risk of potential liability as a result of climate change litigation. 

For example, if private citizens or associations were to challenge an RRP measure, claiming that it harms the environment and contributes to climate change, the States and private economic operators involved could argue that by complying with the extremely detailed list of environmental standards applicable to every RRP measure, they adhered to the best available standards and practices. 

In other words, both States and private companies could benefit from a presumption of having made sufficient efforts to mitigate climate change by adhering to these detailed environmental standards. 

DNSH compliance: the burden of proof falls on private companies

Another interesting aspect of the application of the DNSH principle concerns the burden of proof to show compliance. In fact, Member State will most likely delegate the implementation of the RRF measures to local administrations, which in turn will delegate the works or the provision of services to a private economic operator through a public procurement procedure. Consequently, the burden of proof to show DNSH-compliance is likely to fall on the private economic operators ultimately tasked with implementing the RRF measures. But how can private companies prove their compliance with the DNSH principle?

Looking at the Italian practice, tender notices related to RRP projects require companies to provide a DNSH-compliance declaration, which usually needs to be supported by a certification showing compliance with ISO 14001 standards. Italian local administrations and government agencies therefore rely on the ISO standards to verify the compliance of private companies with relevant environmental law.

In some respects, the uniform use on a European level of the ISO requirements in public procurement could simplify and promote access to the European market, especially for non-EU and multinational companies. On the other hand, the bigger the company, the more complex it will be to obtain the ISO certification. In fact, the process of becoming ISO 14001 certified involves designing and implementing an environmental management system that follows the ISO's best practices and having an ISO-approved auditor perform a full audit of the system. This audit will require extensive documentation, and the auditor may have recommendations that need to be followed in order to obtain the ISO certification. 

In other words, the ISO requirements could limit access to the Italian or even European market for large companies that still lack the necessary certification, as the process to obtain it remains long, complex and expensive. In turn, this could result in increased litigation – which could also lead to a slowdown in the implementation of NGEU measures – between private companies and public administrations: private companies, in fact, could argue that DNSH compliance can be achieved by other, less burdensome means than by requiring ISO certification.