The Government delivered the ESG Regulation Bill to the Parliament on 14 November 2023, the Bill was discussed by the committees on 28 November and recommended for adoption without amendment. The draft legislation aims to make the business activity of the companies concerned more transparent and objectively verifiable on the basis of sustainable finance and ESG aspects, thereby supporting the achievement of Europe's climate protection efforts.

Who will be affected by the ESG legislation, which is expected to come into force on 1 January?

The bill will apply to large companies that exceed two of the following three thresholds:

- Balance sheet total of HUF 10,000 million,

- annual net revenue of HUF 20,000 million,

- the average number of employees in the financial year is more than 500.

The legislation applies separately to large companies that qualify as "public interest entities" and large companies, and to small and medium-sized companies that qualify as "public interest entities". An entity is defined as "public interest entity" if it is significant because of the nature of its activities, its size or the number of employees or its corporate status, including banks, insurance companies and companies listed in the stock exchange.

Relevant companies are required to undergo a sustainability due diligence according to their type, size and influence. As part of this process, they must establish a risk management system and, in addition to regular inspections, an internal responsibility strategy is also required. These companies must prepare an annual ESG report on the fulfilment of their due diligence obligations and make it available free of charge on their website within six months.

Key elements of the draft law

Professional support

There will be some new roles, such as ESG insurer (legal entity carrying out insurance activities subject to reporting requirements), ESG certifier (accredited conformity assessment body). The Ministry of Economic Development will be responsible for managing the whole process and area. They will also be responsible for ESG sustainability training for small and medium-sized enterprises and for the related support, the organisation of ESG consultancy trainings and the training of educational institutions.

The Ministry of Economic Development will entrust IFKA Iparfejlesztési Közhasznú Nonprofit Kft. with the task of keeping a register of ESG consultant training institutions and the accreditation of ESG consultant training institutions in Hungary.

Registration and supervision

The Act designates the Supervisory Authority for Regulated Activities as the supervisory body.  

Their tasks are the following:

• Keeping ESG-related records
• Accreditation of registered ESG consultants, ESG certifiers, companies distributing and producing sustainability software
• Verify the compliance regarding the sustainability obligations through official audits.
• Monitoring the companies' complaints handling system.
• Operates the Hungarian ESG management online platform.

If the Authority detects an infringement, it warns the company or may impose administrative fine and obliges the company to end the infringement and take the necessary preventive or corrective actions.

Direct obligations of the companies

1. Establish a risk management system
2. Develop an internal responsibility strategy and system
3. Making regular risk analyses
4. Establish preventive and corrective actions within the company's own business scope and with its direct suppliers
5. To comply with ESG reporting obligations
6. Requesting declarations from indirect suppliers on the risks involved
7. Initiating ESG certification under legislation or contract

ESG reports must be audited by an ESG certifier registered by a public body within 30 days of receiving it.

Have a question? We can help!

By making your business sustainable, you will not only comply with the new law and EU requirements, but you will also have the opportunity to create a more stable supply chain and be able to access green finance to support the long-term growth of your business.

We offer our partners the following services in connection with the implementation of the law:

- ESG liability assessment

- ESG strategy development

- ESG training

- ESG metrics, KPI and dashboard development

- ESG reports preparation

- ESG audit

Feel free to contact us!