Ensuring Sustainable Investments: How DNSH and Climate Proofing Shape EU Financial Instruments
The European Union is reinforcing its commitment to sustainable finance by integrating the Do No Significant Harm (DNSH) principle and climate proofing into its financial instruments under the European Regional Development Fund (ERDF) and the Cohesion Fund (CF). These mechanisms ensure that public investments support economic development and align with environmental and climate objectives.
The Role of the DNSH Principle in EU Investments
At the core of this approach is the DNSH principle, a safeguard designed to prevent EU-funded projects from negatively impacting key environmental priorities. To receive financial support, projects must demonstrate that their activities do not undermine climate change mitigation, biodiversity protection, pollution reduction, water resource management, or circular economy efforts. This requirement reinforces the EU’s broader sustainability goals, ensuring that economic growth does not come at the expense of environmental responsibility.
Climate Proofing: Strengthening Resilience in Investments
Beyond avoiding harm, the EU is also making sure that funded projects are prepared for the long-term impacts of climate change. Climate proofing is an essential process that ensures investments remain viable in a changing climate by incorporating adaptation and mitigation strategies. As extreme weather events become more frequent and environmental risks rise, projects must be designed to withstand these challenges while contributing to Europe’s climate neutrality targets.
This approach requires assessing potential climate risks associated with an investment and integrating measures to enhance resilience. Whether through energy-efficient infrastructure, nature-based solutions, or carbon footprint reductions, climate-proofed investments align with the EU’s green transition objectives.
Guidance for Financial Intermediaries and Managing Authorities
To help implement DNSH and climate-proofing requirements, the fi-compass initiative has published guidance aimed at financial intermediaries and managing authorities. The publication provides a framework for evaluating compliance, along with case studies from EU-funded projects that have successfully incorporated sustainability safeguards. By adopting these principles, financial actors can align their investment strategies with the European Green Deal while ensuring regulatory compliance.
A Step Towards Greener Financial Instruments
As the EU accelerates its transition to a more sustainable economy, DNSH and climate proofing are becoming essential components of its financial landscape. Their integration into ERDF and CF financial instruments marks a significant step in ensuring that economic growth is both resilient and environmentally responsible. These principles not only enhance investment quality but also reinforce Europe’s commitment to sustainability, helping regions and businesses thrive in a climate-conscious future.
For more insights into how DNSH and climate proofing are being applied to financial instruments, the full publication is available on the fi-compass website.
