LEGAL VIEWPOINT: SUSTAINABLE FINANCIAL INVESTMENTS IN THE WATER SECTOR ACCORDING TO THE EUROPEAN UNION

By Carlos Vázquez Cobos and Eduardo Orteu Berrocal

The construction of a largescale dam can contribute to the achievement of various Sustainable Development Goals by addressing the scarcity of this resource, serving as a structural solution for flood management and producing renewable energy (hydroelectric). Nonetheless, on occasion, the construction and operation thereof can have significant environmental impacts due to hydromorphological pressures, the alteration of ecological flowsor due to the negative effects it may have on ecosystem services. The same concerns can be posed for wastewater reuse projects; while these facilities alleviate the pressure on water resources, increase water supply security and facilitate the implementation of the circular economy, they may also negatively condition water supply for other downstream uses within the basin.

As such, it begs the question: can investing in the construction of these facilities be classified as a sustainable investment? In order to respond to this question, not only with regard to the water sector, but, more broadly, in relation to various scopes of environmental actions identified in the European Green Deal , the EU has approved Regulation (EU) 2020/852, of the European Parliament and of the Council, of 18 June 2020, on the establishment of a framework to facilitate sustainable investment, more commonly known as the “Taxonomy Regulation”.

According to the foregoing Regulation, for an economic activity to be considered environmentally sustainable as well as the funding backing said investment, thereby reinforcing investor security and fighting against what is known as “Green washing”, the following four requisites must be fulfilled:

a) First and foremost, it must substantially contribute to the achievement of one or more of the six following environmental objectives: (1) mitigation and (2) adaptation to climate change; (3) sustainable use and protection of water and marine resources; (4) transition towards the circular economy; (5) pollution prevention and control; and (6) the protection and restoration of biodiversity and ecosystems. Activities other than the foregoing are also included if they directly permit and enable other activities to substantially contribute towards reaching these goals.

Any contribution towards meeting these goals must also be substantial; in the case of water this essentially means that the economic activity must substantially contribute to the attainment of the environmental goals provided in the Water Framework Directive . Pursuant to article 12 of the regulation, this would be the

case for construction of wastewater treatment and water purification facilities, activities that promote efficient water use (including water reuse), those that serve to control polluting discharges, to mitigate the effects of flooding and drought or to improve, through any other means, the qualitative and quantitative status of water bodies.

b) Second, it must not cause significant damage to any of the aforementioned environmental goals. In the case of the environmental goal concerning the protection of water and the marine environment, significant harm occurs when the activity entails a deterioration to the good status (or the good ecological potential) of water bodies, or the good environmental state of EU marine waters. c) Third, the activity must abide by any international directives applicable to companies in respect of human rights.

d) Fourth, and finally, it must conform to the technical selection criteria set by the Commission in order to determine whether an activity significantly contributes to reaching the intended environmental target and whether carrying out the activity produces any significant harm to any other environmental goals. To this end, the Commission has prepared a draft delegated Regulation for the environmental goals concerning the mitigation and adaptation to climate change. Specifically, activities related to the water sector are included in sections 4.1 (on hydropower facilities) and sections 5.1 to 5.4 (on water supply, distribution, sanitation and purification facilities) in each of the annexes for the draft delegated Regulation. The delegated regulations for the remaining environmental targets must be approved prior to 1 January 2023.

Existing EU legal tools (v.g. environmental impact assessment of projects and strategic environmental assessment of plans and programmes), as well as the application of the legal concept of “overriding public interest” contained in the Water Framework Directive can help to shed some light in this regard.

As such, the taxonomy Regulation is a much welcome and anticipated piece of legislation that enables the effective promotion of efforts to channel public and private investments towards activities that allow a greater implementation of sustainability both globally and with regard to the 2030 Agenda. Because, quite simply, without water (and energy), there cannot be sustainability.

Gómez-Acebo & Pombo Abogados, S. L. P. Carlos holds a Master of Law from the Complutense University of Madrid. He belongs to the Senior Corps of State Tax Inspectors and to the Senior Corps of State Insurance Inspectors. He served as an inspector of the National Inspection Office (Oficina Nacional de Inspección) from 1988 to 1996. In this same year, he was named Technical General Secretary of the Ministry of Environment, a position that he carried out until January 2001. From February 2003 to January 2005 he was the Managing Partner of the firm Alya Abogados, S.L., whereupon he was named partner of Gómez-Acebo & Pombo Abogados. He has been named "Lawyer of the Year" on two occasions by Best Lawyers in their publication "Best Lawyers in Spain and Portugal”: Best Lawyer, Spain, Water Law - 2017 (9th Edition) and Best Lawyer, Spain, Natural Resources – 2018 (10th Edition). His Specialization is Public law in general and, in particular, energy, environment, waters, waste, administrative HR and tax law. Carlos is fluent in Spanish and English.

Pombo Abogados, S. L. P. Eduardo holds a Law Degree from the Complutense University of Madrid (1996) and is a former State Civil Servant (1999). Prior to joining GA_P Eduardo served as a Parliamentary Advisor in Cabinet of the Minister for Ecological Transition and as Head of the Support Unit for the General Water Directorate at the Secretariat of State for the Environment in the Ministry of Agriculture, Food and the Environment. Previously he held a post as Sustainable Development Advisor as a Permanent Representative of Spain to the United Nations in New York. Additionally, during his tenure in the Administration he has served in the General Technical Secretariat for the Ministry of the Environment, the Service for the Defence of Competition for the Ministry of the Economy, the General Technical Secretariat for the Ministry of Science and Technology and the General Technical Secretariat for the Ministry of Public Works. Languages: Spanish, English and French.

Gómez-Acebo & Pombo Abogados, S. L. P. P.º de la Castellana, 216 - 28046 Madrid www.ga-p.com

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With the 2022 IDA World Congress on Desalination: Charting Resilient Water Solutions, just a year away, the countdown to the 2022 IDA World Congress in Sydney continues! The Call for Extended Abstract for the Technical Program closes on 15 September 2021.

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