DNSH and EU Funding: What Should Companies Consider Before Applying?

Compliance with the Do No Significant Harm (DNSH) principle is an important requirement when accessing EU funding. However, meeting this requirement involves more than simply submitting environmental declarations. Assessing DNSH requirements at an early stage can help companies identify potential constraints, substantiate technical decisions and prepare stronger funding applications.

Preparing an application for EU funding involves decisions about investment objectives, planned activities, technologies and expenditure. Beyond technical and financial viability, however, projects must also comply with the environmental requirements of the relevant funding instruments.

One such requirement is the DNSH principle, which seeks to ensure that investments do not cause significant harm to the European Union’s environmental objectives.

Under programmes such as Portugal 2030 and the Recovery and Resilience Plan (PRR), DNSH plays an important role in the preparation of funding applications, although the applicable criteria and evidence requirements vary depending on the specific funding instrument.
For corporations, the key challenge is not simply understanding what DNSH means but determining how it may influence project design and what evidence may be required to demonstrate compliance.

WHAT DOES COMPLIANCE WITH THE DNSH PRINCIPLE INVOLVE?

The DNSH principle is rooted in Regulation (EU) 2020/852, commonly known as the EU Taxonomy Regulation, which establishes six environmental objectives:

01 Climate change mitigation Reducing greenhouse gas emissions.	02 Climate change adaptation Preventing and reducing climate-related risks.	03 Water and marine resources Protecting water resources and aquatic ecosystems.
04 Circular economy Resource efficiency and waste management.	05 Pollution prevention and control Protecting air, water and soil.	06 Biodiversity and ecosystems Protecting habitats and species.

Its application is intended to ensure that an activity does not cause significant harm to any of these objectives, even where it makes a positive contribution to other environmental priorities.

For example, a project designed to improve the energy efficiency of an industrial process may reduce electricity consumption while also involving hazardous materials, generating waste or affecting water consumption.

Similarly, developing a new technology with the potential to reduce emissions may require an assessment of the materials used, experimental procedures or waste generated during research activities.

These examples illustrate why the environmental benefits of an investment do not, in themselves, remove the need to assess potential adverse impacts on other environmental objectives, where required under the applicable funding framework.

IS COMPLIANCE WITH ENVIRONMENTAL LEGISLATION SUFFICIENT TO DEMONSTRATE DNSH COMPLIANCE?

An important distinction must be made between complying with environmental legislation and demonstrating compliance with the DNSH principle.

A company may hold all the necessary environmental permits, comply with waste management regulations and operate within the emissions limits applicable to its activities. Nevertheless, depending on the funding conditions, it may still need to demonstrate that the proposed investment will not cause significant harm to the relevant environmental objectives.

Equally, demonstrating DNSH compliance does not replace environmental permitting procedures, legally required environmental assessments or other regulatory obligations.

The same applies to environmental certifications. Although these may provide useful supporting evidence, they do not automatically demonstrate compliance with every DNSH requirement specified in a particular call for applications.

The assessment must therefore take account of the investment’s specific characteristics and the requirements of the relevant funding instrument, rather than assuming that compliance with a company’s existing environmental obligations will always be sufficient.

HOW CAN DNSH INFLUENCE PROJECT PREPARATION?

DNSH requirements can vary considerably depending on the nature of the investment, its potential environmental impacts and the criteria established in the relevant call for applications.

For industrial modernisation projects, relevant considerations may include equipment energy consumption, water use, waste generation and emissions associated with production processes.

For R&D projects, the assessment may instead focus on materials used in prototype development, experimental procedures, the management of waste generated during testing or the potential impacts of the technologies under development.

Where an investment involves constructing or expanding a beneficiary’s facilities, particular attention may need to be paid to location, land use, water resources, construction and demolition waste, and exposure to climate-related risks.

These examples demonstrate why DNSH assessments should reflect the specific technical and environmental characteristics of each project.
In certain circumstances, identifying potential impacts early can influence decisions while an investment is still being designed.

Choosing between equipment with different energy efficiency levels, selecting alternative materials, defining production processes or adopting particular experimental procedures are all examples of decisions that may benefit from an early DNSH assessment.

In an R&D project involving the development of new materials, for instance, identifying potentially hazardous substances may justify investigating alternatives or establishing specific procedures for their use and management.

Likewise, when evaluating different technological solutions for an industrial investment, companies may need to consider not only productivity and cost, but also resource consumption and associated environmental impacts.

DNSH can therefore provide a useful basis for substantiating a project’s technical choices, helping corporations make investment decisions with a clearer understanding of the applicable environmental constraints.

WHAT MISTAKES SHOULD COMPANIES AVOID WHEN PREPARING FUNDING APPLICATIONS?

One of the main risks is treating DNSH compliance as little more than an administrative formality.

While some calls for applications may provide simplified compliance procedures, others may require more detailed technical information, depending on the characteristics of the proposed operation.

Companies should pay particular attention to the following:

• Assuming that the same requirements apply to every funding call. DNSH criteria and evidence requirements may differ between programmes, types of operation and funding instruments.
• Assuming that environmental benefits automatically demonstrate compliance. An investment that contributes positively to one environmental objective may still have significant impacts on others.
• Assessing only the company’s existing activities. The assessment may need to address the specific equipment, processes, facilities or activities covered by the proposed investment.
• Submitting generic declarations without sufficient supporting evidence. Where required, compliance must be substantiated by information appropriate to the project’s technical characteristics.
• Delaying the collection of environmental information. Identifying requirements too late may complicate application preparation or lead to additional requests for clarification.

Avoiding these issues requires environmental requirements to be considered alongside the technical and financial planning of the investment.

WHY SHOULD DNSH BE ASSESSED BEFORE SUBMITTING AN APPLICATION?

Considering DNSH from the project design stage enables companies to identify the applicable requirements, understand potential environmental impacts and determine what documentation may be needed.

This approach can be particularly relevant for investments involving technical decisions that affect resource consumption, waste generation or emissions associated with production processes.

It is important, however, to recognise that not every project requires a complex environmental assessment or the same set of supporting documents. The level of assessment should be proportionate to the nature of the operation and the specific provisions of the funding call.

The aim is not to introduce unnecessary procedures into the application process, but to ensure that investment decisions and their supporting rationale are consistent with the applicable environmental requirements.

DNSH SHOULD BE CONSIDERED FROM THE OUTSET OF INVESTMENT PLANNING

The integration of the DNSH principle into EU funding instruments reinforces the need to align competitiveness, innovation and economic development with environmental protection.

For companies, the challenge lies in understanding how the principle applies to their proposed investments, identifying the conditions set out in the relevant funding calls and gathering the evidence needed to demonstrate compliance.

Rather than being treated solely as an administrative check at the point of submission, DNSH can play an important role in shaping technical decisions and project preparation.

Addressing these requirements early can help companies prepare more robust funding applications by identifying potential constraints, substantiating the solutions selected and reducing the risk of difficulties in demonstrating compliance with environmental requirements.