The Czech Circular Hotspot: Sustainable investment, emission reduction and ESG strategy in the EU are no longer conceivable without a circular economy 

Sustainable investment, ESG strategies and industrial decarbonisation are no longer conceivable in the EU without a circular economy. This was said at another Hotspot Talks meeting organised by the Czech Circular Hotspot. The circular economy has been gradually and systematically embedded in all important instruments to promote sustainable investment within EU legislation. It is foreseen in the forthcoming ESG and non-financial reporting regulations, the EU Taxonomy, as well as in large-scale subsidy schemes. This fifth meeting of the Czech Circular Hotspot members explained how the EU is advancing in promoting sustainable investment and emission reductions (including the introduction of the so-called carbon border offset mechanism – CBAM) and how the circular economy plays an important role in this context. 

As has been mentioned several times before, the European Union has committed to achieving climate neutrality by 2050 as part of the Green Deal for Europe. However, this target is already having an unprecedented impact on the economies of the individual Member States. A current example is a major emissions reduction measure currently being finalised – the Carbon Border Adjustment Mechanism (CBAM) – which, if approved, will apply automatically across the EU with a transition period until the end of 2026.  By 2032, the share of free emission allowances for EU exporters in the industrial sectors concerned should be gradually reduced to zero – 100% in the period 2023-2026, 93% in 2027, 84% in 2028, 69% in 2029, 50% in 2030 and 25% in 2031.  

„The Czech Republic is the fourth dirtiest country in the EU in terms of CO2 emissions per capita. At the same time, the Czech Republic is the second most industrialised country in the EU, with an above-average share of heavy industry. With the new CBAM legislation in the pipeline, we expect the race of companies in the EU to decarbonise as quickly as possible to start very soon,“ says Karel Voldřich from the International Centre for Sustainable Finance (ISFC), who presented the EU’s plans and the Carbon Border Adjustment Mechanism measures in more detail during the meeting. In the Czech Republic, the circular economy is one of the key pathways leading to the decarbonisation of heavy industry. According to international analyses, the switch to CE has the potential to reduce CO2eq emissions in key industrial sectors in the EU by up to 60% by 2050. This is confirmed by a recent study by INCIEN (Institute of Circular Economy), which names effective circular tools for decarbonising Czech industry. 

A message to investors: the transition to a circular economy is one of the six main objectives of the EU Taxonomy. That is why it is worth investing in it.

A large share of private investment is needed to make the EU climate neutral by 2050. Petr Novotný, Senior Consultant at INCIEN, explained the importance of the EU Taxonomy for investors: „The Taxonomy is – simply put – a list of activities in different sectors of the economy that have been identified as sustainable by EU legislation, making them more attractive to investors who are strategically directing more and more capital into sustainable activities and projects.“ 

Furthermore, Petr Novotný pointed out that technical screening criteria for the transition to a circular economy will be adopted within the EU Taxonomy during the next year 2023. And for these reasons, projects containing CE elements have a favourable position with investors, e.g. banks. Karel Voldřich added to this and underlined the importance of the information by the fact that if companies do not invest in sustainable solutions today, it will soon be very difficult for them to find any external financing.  

Although the EU Taxonomy is not mandatory, it is worth following. Non-financial reporting is already mandatory for large companies.

The practical implications of the Taxonomy for the Czech corporate environment in the area of CE were explained by Ben Hague, head of research at INCIEN on the Czech corporate environment: ‚Companies do not have to meet the criteria that the EU Taxonomy sets out in sustainability. For example, from 2023, the Taxonomy on CE in the construction sector stipulates that at least 90% of construction and demolition waste will be ready for recycling. Construction companies do not have to meet this target, but if they measure their progress in this area and increase the proportion of their activities in line with the Taxonomy, they will improve their position with investors who prefer to channel their capital into sustainable investments.“ 

Ben Hague also adds that the Taxonomy obligations for companies are so far only in the area of reporting – the obligation to report what percentage of their total turnover, investments (capex) and operating costs (opex) they are directing to activities or projects that meet the Taxonomy’s climate criteria. This obligation now only applies to large companies identified by the Non-Financial Reporting Directive (NFRD) – e.g. the Bank, but will be extended to all companies from 2025 under the forthcoming Corporate Sustainability Reporting Directive (CSRD). 

The circular economy is also supported by European subsidies – relevant subsidy programmes

The circular economy is actively embedded in both current and planned subsidy programmes. Subsidies target small, medium and large enterprises in the Czech Republic, including the capital city of Prague. Funding for circular solutions is currently provided under the National Recovery Plan (NRP) and the amount of subsidy ranges from EUR 1 to 20 million. The subsidy can be applied for, for example, by a company with activities related to the recovery of construction waste, the reverse closure of material cycles and the optimisation of ecodesign. Another subsidy programme is OP TAK with the sub-programmes Innovation, Low Carbon Technologies and Support for the Transition to a Circular Economy. Relevant subsidy programmes can also be found in the TAČR programme, under the TREND – Newcomers sub-programme. 

About the Czech Circular Hotspot 

The Czech Circular Hotspot is a platform that comprehensively connects the public sphere with the private sector to put CE into practice. It is designed for corporations, medium and small enterprises, NGOs, start-ups, academic and research institutions, public authorities, as well as for individuals and freelance experts. Members are invited to collaborate on the creation and application of circular principles across segments and sectors. 

More info here (in Czech). Don’t miss out on also becoming part of the circular platform, the next entrance opportunities will await you in spring and autumn.

 

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