Czech Republic

TerraLex Cross-Border Guide to Cross-Border Guide to ESG and Sustainable Finance

TerraLex is pleased to announce its recent digital publication of a Cross-Border Guide to ESG & Sustainable Finance, a resource for key ESG regulations and trends around the world. This electronic resource, which covers more than 20 jurisdictions around the world, addresses a variety of issues, including:

Key statutory disclosure obligations
Analogous regulations or regulatory initiatives in the absence of formal rules
Shareholders/investors’ rights and liability around ESG compliance
Potential ESG prohibitions or restrictions within the statutory framework
Tax and other benefits related to integrating ESG factors into investment decisions
Special measures against greenwashing and any related enforcement action
Emerging legislative and regulatory developments related to ESG

Special thanks to Martin Weber (Roesle Frick & Partners) as well as the members of the TerraLex ESG Industry Sector Team for developing the questions for this guide.

How to Use: You can use the tools below to create bespoke reports for the jurisdiction(s) and topic(s) covered. Click into single jurisdiction for one location or use the compare tool to compare multiple jurisdictions. Select the jurisdictions and topics of interest to create your unique report. You also have the option to print or download using the ellipsis button in the top right corner.

Czech Republic Cross-Border Guide to ESG and Sustainable Finance Guide

Firms:: Peterka & Partners advokátní kancelář s.r.o. (Czech Republic)
Authors:: Barbora Urbancová
Date posted:: 05/06/2023
Last update:: 20/06/2024

What are the key statutory environmental, social, and governance disclosure obligations in your jurisdiction?

The Accounting Act:

An entity presenting non-financial information shall disclose such information to the extent necessary to understand the entity's or group's development, performance and position and the effects of its activities, including, at a minimum, non-financial information about:

the environment;
social and employee issues;
respect for human rights;
combating corruption and bribery.

The Act on Business on the Capital Market:

A description of the diversity policy applied to the issuer's governing body, taking into account, for example, criteria such as age, gender, education, and expertise, including information on

the objectives of the policy;
how it is applied;
the results of its application in the relevant financial year

For financial year 2024, reporting for the same entities as NFRD entities: CSRD Directive (to be implemented in the Czech legal system) European Sustainability Reporting Standards (ESRS) Taxonomy Regulation.

Are there any important voluntary environmental, social, and governance disclosures in your jurisdiction, beyond those required by law or regulation?

Entities which are not obligated to disclose information can voluntarily disclose the information as set out in the answer to question 1.

What are the frequently used frameworks for ESG disclosures in your jurisdiction (e.g., GRI, SASB, TCFD recommendations, etc.)?

The framework most frequently used for ESG disclosures in the Czech Republic is the GRI. After adoption of ESRS also these standards are used for the reporting.

What are the key statutory environmental, social, and governance obligations requiring action other than disclosure in your jurisdiction?

In exercising his or her rights, no one may endanger or damage the environment, natural resources, species richness of nature and cultural monuments beyond the extent prescribed by law. There is a prohibition on discrimination on the grounds of sex, race, colour, language, creed, and religion, political or other opinion, national or social origin, membership of a national or ethnic minority, property, birth, or other status. The principle of loyalty of the member of the elected body of the company. The protection of the company if there are conflicts of interests of the member of the elected body of the company.

Do ESG rules in your jurisdiction have extraterritorial effect?

Not in the case of the ESG rules in the Accounting Act. But the ESG rules in the Act on Business on the Capital Market mentioned in the answer to question 1 have extraterritorial effect

Are there any specific regulations in your jurisdiction regarding advertising with ESG claims?

It is possible to suppose that if the company lied about any ESG aspects in connection with its performance, this would be considered misleading advertising in accordance with § 2977 of the Civil Code. But at the moment, there is no judicial precedent in the Czech Republic.

Is it required in your jurisdiction to impose special ESG rights and/or obligations on suppliers (e.g., contractual clauses pursuant to UK Modern Slavery Act)?

No, but the contractors are indirectly involved by reporting on value chain. The sustainability report shall include information about the entity's value chain, including information about its business relationships and supply chain. Where the necessary value chain information cannot be obtained, the sustainability report shall instead include:

a) an explanation of the efforts made by the entity to obtain this information, b) the reasons why it was not possible to obtain that information; and c) the ways in which that information will be obtained in future accounting periods.

Can shareholders/investors hold a company/entity or its corporate bodies/representatives liable when positive ESG efforts of such company (e.g., initiatives to achieve net zero) cause loss to the company and/or them?

In such a case, on the one hand, there would be the duty of loyalty of the member of the body towards the company, on the other hand, there would be the interest in achieving ESG goals. The basic rule for assessing such liability is whether or not that member has complied with the duty of loyalty. If, in an individual case, it would be concluded that the member acted contrary to the interests of the company, even if he/she achieved the ESG goal, the company (shareholders) could demand compensation from him/her. In the case of investors, it depends on whether there is a contract between them and the company (or the member of the body) and if such a liability is enumerated. But they can’t be held liable only on the basis of law.

Can shareholders/investors hold a company/entity or its corporate bodies/representatives liable when non-compliance with ESG rules causes loss to the company and/or them?

The basic rule for assessing such liability is whether or not that member has complied with the duty of loyalty. If, in an individual case, it would be concluded that the member acted contrary to the interests of the company, without any respect to the compliance with ESG goals, the company (shareholders) could demand compensation from him/her. In the case of investors, it depends on whether there is a contract between them and the company (or the member of the body) and if such a liability is enumerated. But they can’t be held liable only on the basis of law.

Can customers, creditors, or other affected parties hold a company/entity or its corporate bodies/representatives liable when non-compliance with ESG rules causes loss to them?

No, they can’t. It is only possible to sue a natural person or legal entity if he, she, or it causes damage to the environment. This would depend on the nature of the claim.

If there are no ESG rules in your jurisdiction, is there any analogous regulation or regulatory initiative?

Regulation on taxonomy

Commission Delegated Regulation (EU) (C/2021/4987 final) supplementing Regulation (EU) 2020/852 by specifying the content and structure of the information to be disclosed by undertakings pursuant to Articles 19a or 29a of Directive 2013/34/EU in relation to environmentally sustainable economic activities and specifying the methodology for the purpose of fulfilling this disclosure obligation.
Commission Delegated Regulation (EU) (C/2021/2800 final) supplementing Regulation (EU) 2020/852 of the EP and the Council as regards the establishment of technical screening criteria for determining under which conditions an economic activity qualifies as a significant contribution to climate change mitigation or adaptation and whether that economic activity significantly undermines any of the other environmental objectives.

Has your jurisdiction reviewed its statutory framework to identify any prohibitions or restrictions that would prevent a company/entity from pursuing ESG initiatives?

We don’t have any such information.

What statutory sustainable finance and investment frameworks are followed in your jurisdiction regarding ESG indicators (i.e., how a company operates) and impact indicators (i.e., what a company achieves with its products and services)?

There are no statutory finance and investment frameworks regarding ESG indicators.

What voluntary sustainable finance and investment frameworks are followed in your jurisdiction regarding ESG indicators (i.e., how a company operates) and impact indicators (i.e., what a company achieves with its products and services)?

It is possible to measure the carbon footprint, and the amount of waste containing plastic, paper, and electronics; further there is a system of “Greenhouse gas emission allowance trading” which motivates entities to behave in a more sustainable manner in relation to the environment, etc. In regard to the environment, our company practices waste collection. In regard to diversity, we place women into leading positions. We also promote and practice timeless values in regard to anti-money laundering, confidentiality, a privacy policy, conflicts of interest, and the equal dignity of all people.

Are financial institutions, investment advisors, and/or pension institutions in your jurisdiction required to consider ESG factors when making investment decisions or recommendations?

Not on a legal basis. Only on a business basis.

Are there any tax or other benefits available in your jurisdiction to encourage financial institutions and/or pension institutions to integrate ESG factors into their investment decisions?

No legal benefits are attached to the integration of ESG factors into investment decisions.

Have the regulators (including financial market supervisory authorities) in your jurisdiction adopted special measures against “greenwashing”? What are the consequences of non-compliance with such measures?

Greenwashing could be punished in our legal system mainly as misleading advertising. In this context, the Office for the Protection of Competition may impose fines.

Have there been any recent enforcement action or case law pertaining to “greenwashing” in the financial market in your jurisdiction?

No.

What legislative and regulatory developments are likely to emerge in connection with ESG obligations in your jurisdiction?

New Accounting Act.

What legislative and regulatory developments are likely to emerge in connection with the consideration of ESG factors in M&A in your jurisdiction?

At this moment we don’t expect any new regulations connected with M&A.

Disclaimer: This guide contains summaries of general principles of law. It is not a substitute for specific legal advice and should not be relied upon in relation to the application of the law or subject matter covered.