A new sector emerges in CEE, as companies anticipate compulsory ESG reports

Having committed to becoming the first climate-neutral continent by 2050, the EU faces a major challenge and companies will have to play a part in this, Slovak business daily Hospodarske Noviny (HN) wrote in a wide-ranging article on the implications of environmental, social, governance (ESG) goals.

The bloc’s ESG framework also includes monitoring greenhouse gas emissions, especially carbon dioxide, and the largest companies will be obliged to report on their sustainability from 2025.

The first wave, HN notes, will involve over one thousand Czech companies that are publicly traded on the stock exchange, or that meet at least two of these three criteria that necessitate reporting ESG information: 250 employees or more, a net turnover of at least one billion crowns (EUR 42.24mn), or assets of more than 500 million crowns.

As this is a huge investment in reconfiguring the entire functioning of society, the private sector must help, HN writes, adding that a recent survey of the Union of Industry and Transport found a rising awareness amongst Czech companies of growing pressure regarding sustainable behaviour.

Czech app helps firms calculate environmental impact

Companies are being formed to monitor these impacts, HN writes, mentioning start-up Impact Metrics, a digital platform for the collection, monitoring, processing and reporting of companies’ ESG data.

Impact Metrics co-founder Martin Klofanda told the Slovak daily about the start-up’s cheapest product: “a carbon footprint calculation with a price starting at 29,000 crowns (EUR 1,225)”.

An increasing number of companies see sustainability as a business opportunity or a way to increase their competitiveness, according to Impact Metrics. “Now is still a good time for them to stand out, before reporting becomes mandatory,” co-founder Dan Heuer said.

Investors key to ESG – report

“The great allies of ESG are investors. Today, they no longer want to invest in companies that do nothing for sustainability,” says Heuer.

The Impact Metrics start-up was also created with the help of investors, specifically RSJ Investment, which was co-founded by the current head of the group, Libor Winkler, with Karel Janecek. Its founders expect profitability within two years due to the upcoming ESG reporting obligation, i.e. in 2025.

“We rely on the fact that there is a demand and there will be a real need for ESG companies to do. Already next year, we expect significant growth,” Klofanda said. ESG consultant Fair Ventures also helps the company in acquiring clients.

The start-up Green0meter also operates on the Czech market, helping companies to calculate their carbon footprints and to create ESG reports.

Clients increasingly pressure firms to comply

Some companies are already being forced to comply with ESG by their customers, according to Klofanda. Fulnec Moravia Stamping, which deals with the development and pressing of parts, stated a year ago that it was not interested in ESG, he recalled.

“However a year later a big customer Skoda Auto changed its mind,” he said, adding that such cases will now proliferate. Professor Vladimir Koci, who participated in the development of the Impact Metrics platform, told HN that companies must be careful about where they get their emissions and ESG reports calculated.

“There are various where on the market, but it is often a new form of greenwashing, i.e. repainting in green in the case of projects that are not sustainable in reality and are only abused by companies for marketing purposes,” Koci said, “similar to the first solar power boom in Czechia or the promotion of first-generation biofuels”.

According to Heuer, too, there is a great risk of greenwashing: “certifications are emerging on the market without any meaningful value – businesses should watch out for them.”

Greenwashing marked by lack of clear goals

One of the goals of the new ESG legislation is to ensure transparency on the market and limit greenwashing. Companies that are subject to the ESG reporting obligation will also have to undergo audits of the data they supply to the reports, which should make it more difficult for fraud to occur.

According to Pavel France, executive director of the strategic law firm Frank Bold, there is a simple rule to recognize greenwashing. “If the company is doing it right, it must have clear goals that are defined by specific numbers, and it must have plans to achieve them. And all this should be published, otherwise, it’s just words,” France told NH.

Reporting does not only apply to the EU; a similar system is also being implemented in the US. “The environment and climate neutrality are something that is far from being addressed today, not only by the EU, but by the whole world,” Czech Union of Industry and Transport board member Petr Jonak said.