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Infrastructure Insights — October 2023

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EU Court Ruled on FDI Screening Limits — Implications for Investors

The Court of Justice of the European Union’s first decision on foreign direct investment (FDI) screening limits the scope of the EU FDI Screening Regulation and underlines that national regulators must meet a high legal standard to block foreign investments.

In July, the Court held that the decision by the Hungarian government to block the planned acquisition of a Hungarian sand and gravel quarry under its national foreign investment screening laws was incompatible with EU Treaty rules and in violation of the freedom of establishment.

Significantly, the Court held that:

  • the EU FDI Screening Regulation is limited to investments in the EU made by undertakings constituted or otherwise organised under the laws of a non-EU country; and
  • national FDI regulators must meet a high legal standard when restricting the freedom of establishment (either by imposing remedies or issuing prohibition decisions).

The Court therefore applied its settled case law that any such restriction for security and public order reasons was only justifiable if it prevented a “genuine and sufficiently serious threat to a fundamental interest of society”.

For more on this ruling and the implications for investors, see our Client Alert.


Private Capital Helps Fuel the Global Energy Transition

Global investment in energy and infrastructure remains strong, with private equity and infrastructure funds investments increasing. The US is leading in the global market following the passage of legislation supporting long-term infrastructure investment and the energy transition.

Private capital is increasingly shifting from volatile real estate markets to the stable risk-return profile of infrastructure opportunities. Private equity infrastructure firms are well-positioned to participate in the energy transition by acquiring oil and gas assets and funding projects ranging from renewables to liquefied natural gas.

For more on the role private capital is playing in the infrastructure sector, see the fourth edition of Private Capital Insights.


EU Directive Expands Role of Renewable Fuels

The European Council formally endorsed the proposed amendments to the EU Renewable Energy Directive that would require the share of renewable energy in the EU’s overall energy consumption to rise to a minimum of 42.5% by 2030, with a further non-binding EU-wide goal to achieve 45% by 2030.

The goal of the amendments, commonly referred to as RED III, is to meet the EU’s legally binding target of a 55% reduction in greenhouse gas emissions by 2030 as compared to 1990 levels.

RED III envisages an expanded role for the use of so-called renewable fuels of non-biological origin (RFNBOs), such as green hydrogen. For example, RED III would allow RFNBOs to count towards the share of renewables used in the particular sector in which they are consumed (not just in transportation) provided that there is no double-counting of the electricity used to produce the RFNBOs and the use of the RFNBOs themselves.

RED III sets the following specific sub-targets related to RFNBOs use:

  • Transportation: A combined sub-target of 5.5% for advanced biofuels and RFNBOs, of which 1% must be met solely by RFNBOs.
  • Industry: A minimum of 42% of the hydrogen used should come from RFNBOs by 2030 and 60% by 2035.

Despite the ambitious goals and targets set by RED III, the question remains whether Member States and private industry would respond by increasing the production and use of RFNBOs.

For more on RED III, see our blog post.


EU Seeks to Supercharge Sustainable Battery Investment

In July, the European Commission published a legislative proposal for a new EU Batteries Regulation.

The EU Batteries Regulation will impact all companies manufacturing and selling batteries in the EU market, as well as investors and lenders involved in considering battery projects. Areas of implication include:

  • Due diligence: All manufacturers, producers, importers, and distributors of all types of batteries which are placed on the EU market and are independent of origin (Economic Operators) must develop and implement a due diligence policy to address the social and environmental risks linked to sourcing, processing, and trading raw materials and secondary raw materials.
  • Safety: Electric vehicle (EV) batteries will have to comply with the restrictions on the use of hazardous substances, the requirements concerning the carbon footprint of batteries, and the content of recyclates in such batteries.
  • Sustainability: Manufacturers will need to calculate the carbon footprint for each battery model produced in the manufacturing plant and include this information in the battery carbon footprint declaration.
  • Supply chain: Economic Operators who place certain rechargeable industrial batteries and EV batteries (over 2kWh) will need to adopt due diligence policies for supply chains of cobalt, natural graphite, lithium, nickel, and other chemical compounds.
  • Technical: Manufacturers must carry out a conformity assessment and label their batteries with a CE marking before placing them on the EU market.
  • Battery passport: All batteries must be marked with a QR code linking to a website that contains information on their manufacturer, chemical composition, etc.
  • Waste management: EV manufacturers will be required to set up a scheme for recovering batteries from end users.

For more on the EU Batteries Regulation, see our Client Alert.


Restrictive Covenant Crackdown Poses New Challenges for M&A Deal Teams

Regulators on both sides of the Atlantic are placing greater focus on non-compete and no-poach clauses, clamping down on restrictive covenants which are common in employment agreements and market practice in M&A deals.


  • The Federal Trade Commission proposed a new rule to ban non-competes in most situations, challenging the clauses as an “unfair method of competition”. This rule would require all US employers to rescind existing non-competes and would significantly limit the use of deal-based non-compete clauses with narrow exceptions.


  • In European jurisdictions, the standard approach remains that in order for a non-compete to be enforceable, employees must receive appropriate compensation during their post-termination period.
  • The European Commission has signaled enhanced enforcement on no-poach agreements and has imposed fines on companies in various jurisdictions and sectors.


  • The UK government confirmed plans to introduce a statutory limit on the length of non-compete clauses in employment contracts to three months post-termination.
  • The Competition and Markets Authority has demonstrated an appetite for enforcement against no-poach agreements that violate competition law.

As regulatory scrutiny grows, deal teams will need to review the use of these clauses, navigate safe harbours, and find new ways to protect goodwill within new laws and regulations.

For more on the proposed regulatory developments, see our article


Data Centres in Frankfurt: A City Fit for the Future?

Frankfurt ranks as one of the top locations for data centre operations worldwide. However, market participants have recently launched discussions around the extent to which Frankfurt is still fit for the future as a data centre hub. Some key issues include:

  • A city development plan that would concentrate data centres to specific areas and thereby restrict the development of new “independent” data centres.
  • Potential guidelines for the construction of new data centres that would require providers to build some data centres on mixed-use sites and into building complexes.
  • The announcement by local power grid operators that no new capacities will be allocated in Frankfurt in the next few years.

For more on Frankfurt’s future as a data centre hub, see our Q&A.

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