Regulation of ESG in Hungary

30. 01. 2024.

ESG (Environmental, Social, Governance) is increasingly playing a prominent role in the business world as a measure of companies’ responsibility and sustainability. This framework represents a new foundation for business strategy formulation and corporate activities, where environmental, social, and governance factors meet in a unified framework.

In our article titled “ESG: A sustainable future pathway“, we introduced the ESG framework, explored its objectives, and discussed ESG reporting obligations. Continuing from there, it is important to present the regulations in Hungary, which guide companies to conduct their activities in a sustainable and ethical manner.

The ESG law

In relation to domestic regulations, the so-called ESG Law* was adopted on December 12, 2023, which regulates sustainable financing and corporate responsibility, taking into account environmental, social, and societal aspects. The law came into effect on January 1, 2024, requiring certain large businesses of public interest to initially comply with various sustainability-related auditing obligations. This will likely require a certain level of resource investment from these large enterprises.

What obligations need to be met?

Companies under the law’s jurisdiction will make their sustainability operations more transparent through compliance with the regulations.

Tasks include:

  • establishing a risk management system,
  • conducting regular and comprehensive risk analyses to identify significant social responsibility and environmental risks,
  • defining related preventive and corrective measures within the business’s own sphere of influence, and towards direct suppliers,
  • establishing an internal responsibility strategy and system,
  • fulfilling ESG-related data provision obligations.

ESG riporting

The ESG report, resulting from data provision, must meet various content criteria. The obligated parties must prepare and publish their first ESG report in 2025, concerning the company’s business activities for 2024, and then annually publish the current report.

The content elements include:

  • description of the sustainability audit process,
  • a list of identified social responsibility and environmental risks, as well as violations of human rights or environmental obligations (if any),
  • measures taken by the company to prevent, mitigate, or restore actual or potential adverse sustainability impacts, their results and evaluation (their impact and effectiveness),
  • conclusions for future measures,
  • identified stakeholders in corporate social responsibility, set goals, results of the audit process and its outcomes, and measures taken to prevent, mitigate or restore possible adverse effects, and their results.

The reports must be audited by an ESG certifier and made freely and publicly accessible on the company’s website. Failure to comply with the obligation results in a fine.

How can data provision be facilitated?

To comply with the ESG law’s obligations, it is advisable to seek the assistance of a knowledgeable consultant who can contribute to the successful and timely fulfillment of the company’s sustainability audit obligations with their experience and expertise. The consultant can participate in the collection and analysis of data related to sustainability issues, the preparation of social responsibility strategies, and formulating responses to risk management, risk analysis, and preventive measures, thus fully adhering to the relevant regulations.

It is also recommended to use software that assists in data collection, data management, and evaluating the effectiveness of actions taken, especially in terms of risk analysis. These can currently be IKT systems of companies accredited in Hungary, marketing and manufacturing ESG software, but its regulatory-level state regulation is still under development. Some of these systems collect and organize information into a uniformly defined data structure, ensuring the complete automation of data provision, and are capable of creating custom reports and statements, thereby providing a basis for the quick and precise preparation of certain parts of the report.

The ESG expert team of eNET Hungary not only offers solutions for the simple and efficient fulfillment of its clients’ ESG obligations but also helps them achieve their sustainability goals.

Get to know our ESG transformation services and learn more about the benefits of reporting and achieving ESG goals and their measurement!

*Act CVIII of 2023.