The European Union has set an ambitious goal. It wants to ensure that the European economy becomes climate-neutral by 2050.
The EU aims to achieve this by means of a climate law to be submitted by the European Commission this spring.
But this plan will have a significant impact on European business. Subsequent to the adoption of the existing regulatory measures strengthening the environmental protection, which have recently hit primarily the automotive industry, the envisaged changes will affect almost every sector. According to experts, however, they can have a bigger impact on the Czech economy than on other European Union countries. One of the reasons for such impact is the above-average share of industry in the domestic economy.
“The European Commission itself admits that for some countries the path towards carbon neutrality will be associated with higher costs. This will obviously be the case of the Czech Republic, which will, due to the high share of industry, bear much higher costs in relation to GDP than the EU average,” says Bohuslav Čížek, Director of the Economic Policy Section of the Confederation of Industry of the Czech Republic.
Another reason is that Czech firms have not voluntarily applied the same extent of sustainable measures in the past as corporations abroad. Consequently, it will be now something new for many of them. Last year's research conducted by the consulting firm PwC revealed a significant difference between the Czech Republic and some other - especially Western - EU countries. In the Czech Republic, still relatively few companies address this issue at the strategic level. “Many of them tend to organize ad hoc activities or pursue sustainability only at the level of the minimum legislative requirements or in the context of corporate social responsibility,” comments Markéta Jechová, PwC sustainability consultant, adding: “In general, Western Europe is better prepared to adapt to these changes.”
In the past, more voluntary initiatives aimed at climate protection also occurred in Poland or Hungary.
“One of the reasons is also the Czech resistance to brainwashing. Czechs are in certain aspects almost down-to-earth, which I appreciate. And in this case, it is pretty obvious,” says Tomáš Babáček, partner of Deloitte Legal law office.
Across the sectors
In general, the new regulatory measures will entail much higher costs for the corporate sector and significant changes in resource management and financing of new business plans. However, specific impacts of the European climate strategy will vary by sector.
“The automotive industry, energy and agriculture will be particularly affected,” says Radim Kotlaba, lawyer at KPMG consulting firm. As an example, he mentions the already known regulatory measures aimed at reducing carbon dioxide emissions for the EU fleet by 2030. Specifically, this means the obligation to reduce emissions by 37.5 percent for new passenger cars and 31 percent for new vans. “For the first time, a 30 percent reduction target has also been set for new trucks,” Kotlaba comments on the already approved changes to European rules. This resulted, among other things, in the acceleration of the advent of electric vehicles on the production lines of European car factories, including Škoda Auto in Mladá Boleslav.
The Czech Republic has a lot of industry compared to other European countries, moreover it has so far ignored climate protection. That is why the new European regulatory measures will now affect it more seriously than other countries.
In the future, also sectors requiring a lot of material inputs, such as the chemical industry, mechanical engineering or textile production will be subject to major changes. Companies in these fields will have to use fewer resources and moreover, the recycled ones. “Already now, such businesses are devising ways to secure inputs of a certain quality. All this means more effort and worries for them,” explains attorney Babáček. According to him, the market will gradually undergo a double change. “On the one hand, this will give rise to advent of bigger players, because all this is extremely logistically and financially demanding. “On the other hand, new small businesses, that will provide input to these larger players and will be relatively independent, will enter the market,” Babáček says.
However, the emerging ecological trend is relevant even for sectors that do not themselves influence the climate too much. This involves, for example, banking. The thing is that at the end of last year the EU adopted a regulation on sustainable financing. This should encourage financial institutions to redirect loans to low-carbon projects.
Even Czech financial institutions are gradually starting to react to this new regulatory aspect.
“Our goal is to double by 2022 funding to organizations that help to combat climate change,” says Eva Bučová, senior advisor at ING Bank. Three years later, the bank wants to completely eliminate lending to polluting industries.
Change of attitude
Due to the new climate legislation, entrepreneurs will have to fundamentally change their attitude to business. For example, they will have to deal with the fact that sustainability cannot always be translated into purely financial indicators.
“Thus, in the context of economic decision-making, the environmental benefit parameter becomes more important”. As a result, it may happen that a project previously rejected for non-profitability will be implemented in the future,” says Pavlína Rampová, lawyer at KPMG Legal.
In order for the Czech industry to sustain its current economic performance, Czech entrepreneurs will have to become much better environmental strategists and visionaries. “This is a huge opportunity. But if the new legislation remains to be perceived as marginal in our country, we will still be one or two steps behind those who have already anticipated this approach and pushed it through at the EU level,” notes Babáček of Deloitte Legal.
According to Jan Mraček, chairman of the Environment Section of the Czech Chamber of Commerce, the domestic business sector is already prepared to take much more environmental considerations into account when investing and developing products. “It is a logical development and companies are not opposed to adopting responsible approaches. On the contrary, they realize that changing behaviour, for example in resource use, consumption, or in the entire product life cycle, is inevitable,” says Mraček.
This “visionary” change is already being implemented by some Czech companies. The new measures, that are currently under consideration at the EU level, are in line with, for example, the long-term strategy of the company Greenberry which is engaged in hydroponic vegetable growing. This is done in an enclosed space where both water and air are filtered. And precisely this is the advantage of this company. “We consume one percent of water compared to traditional agriculture, do not fertilize with chemicals, do not use any anti-mould sprays or sprays against insect pests and other pests,” explains Greenberry CEO Ondřej Tomeš. However, the new legislation will have an impact on such an environmentally conscious company, too. For example, it will have to reduce supply distances in the future or make more use of returnable packaging for its products.
Karolína Topolová, CEO of AAA Auto second-hand car dealership network, also takes environmental regulatory measures as an opportunity. “It is possible that some repressive measures will be taken against traditional cars, which would lead to a greater fleet replacement”. However, such replacement is always positive for second-hand car dealers because it sets the market in motion,” says Topolová.
However, other Czech entrepreneurs perceive the emerging European ecological wave as much bigger limitation to their business. “We were most seriously affected by the regulation to build only low energy houses, which limits people’s choices.” Moreover, it completely falls flat. The expected energy savings will not occur, as one should not ventilate by windows,” says Evžen Korec, CEO of residential developer Ekospol.
The attitude to business will change. The new environmental regulatory measures can encourage companies to implement projects that they previously considered unprofitable.
Markéta Stržínková, CEO of the Czech branch of the insurance company Atradius, also draws attention to the hard impact of ecological visions. “We have voluntarily implemented a fairly radical company emission reduction scheme, but as a result, the operating costs of company cars have risen,” Stržínková describes.
Consequently, it depends primarily on finances and attitude of individual owners and managers of companies whether they turn environmental regulatory measures into an opportunity or just stand by and watch how they are losing their competitiveness due to Europe's commitment to a “green” policy.
Prepared in cooperation with the monthly Právní rádce (Legal Advisor).