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We introduce an approach to treat localized correlated electronic states in the otherwise weakly correlated host medium. Here, the environment is dynamically downfolded on the correlated subspace. It is captured via renormalization of one and two quasiparticle interaction terms which are evaluated using many-body perturbation theory. We outline the strategy on how to take the dynamical effects into account by going beyond the static limit approximation. Further, we introduce an efficient stochastic implementation that enables treating the host environment with a large number of electrons at a minimal computational cost. For a small explicitly correlated subspace, the dynamical effects aremore » critical. We demonstrate the methodology by reproducing optical excitations in the negatively charged NV center defect in diamond, that agree with experimental results.« less