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Publications Hungarian ESG Sustainability Regulation

Hungarian ESG Sustainability Regulation

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​​​​​​​​​​​​​​​​​​​​​​​​​​​Published on: 14.11.2024 / Reading time approx. 10 minutes


The Hungarian ESG (Environmental, Social, Governance) regulation aims to promote corporate social responsibility that takes into account environmental, social and societal aspects, in line with the sustainability regulations in force in the European Union​.​

Hungarian regulation and reporting requirements​:  
  1. it derives from the ESG Act (Act CVIII of 2023) and its implementing regulation (13/2024 (VIII. 15.) SZTFH) as well as​ 
  2. the independent reporting obligations arising from the Accounting Act (Act C of 2000).



​​​Note: The form and required content of the two reports are not identical​.


I. ANNUAL REPORT: SUSTAINABILITY STATEMENT/REPORT​

EU legislation: Corporate Sustainability Reporting Directive (CSRD), European Sustainability Reporting Standards (ESRS)
Hungarian legislation: Accounting Act (Act C of 2000 on Accounting)

Companies subject to the Accounting Act are required to prepare an audited Sustainability Report as part of their annual report if certain indicators are met or if they are of public interest. The report must be prepared using ESRS standards and double materiality analysis.

Concerned companies (Article 95/E (1) of Act C of 2000)


For the year 2024, reporting required in 2025:

Large enterprises and financial institutions that are considered to be public interest entities and for which two of the following three indicators exceeded the thresholds in the individual or consolidated accounts for two financial years preceding the financial year:
  • balance sheet total was over HUF 10,000 million,
  • annual net turnover was more than HUF 20,000 million,
  • the average number of employees during the financial year was over 250.

For the year 2025, those required to report in 2026:

Large enterprises which, on the balance sheet date of the two financial years preceding the financial year, exceeded the required values for any two of the indicators described in the above point.

The reporting population will be further extended from 2027 to include small and medium-sized enterprises of public interest, small and non-complex credit institutions and closed-end insurance companies, and finally to third country companies with subsidiaries or branches in the EU​.

Reporting format (Article 95/E (3) of Act C of 2000)


The sustainability report must be included in the annual report in a clearly identifiable manner.

Content of the sustainability report (Article 95/E (4-7) of Act C of 2000)


The sustainability report must contain, inter alia, the following (Article 95/E (4)):
  • a brief description of the business model and strategy of the entrepreneur; 
  • a description of the time-bound objectives relating to the sustainability issues identified by the entrepreneur; 
  • a description of the role of the administrative, management and supervisory bodies in relation to sustainability issues;
  • a description of the undertaking's policies on sustainability issues; 
  • the measures taken by the undertaking to prevent, mitigate, remedy or eliminate actual or potential adverse impacts and the results thereof; 
  • a description of the main risks to the entrepreneur in relation to sustainability issues.

The sustainability report shall include information on short, medium and long-term time horizons, as appropriate.

Exemption from the requirement to prepare a sustainability report (Article 95/F of Act C of 2000)


A subsidiary of a parent company governed by the law of an EU Member State is exempted from the obligation to prepare a report under Article 95/E if the consolidated sustainability report of the parent company prepared in accordance with the sustainability reporting standards includes the subsidiary and its subsidiaries and the subsidiary provides the name and registered office of the parent company in its annual report.

Disclosure of the sustainability report (Article 95/I of Act C of 2000)


The entrepreneur must file and publish the annual report containing the sustainability report, together with the auditor's assurance opinion, in an electronic reporting format at the same time as the annual accounts. The entrepreneur shall also publish the annual report containing the sustainability report on its website.

Audit of the sustainability report (Article 158/A of Act C of 2000)


The auditor or audit firm that is a member of the Chamber of Auditors and holds a sustainability certificate issues a qualified assurance opinion on the sustainability report or the consolidated sustainability report in the form of a statement​. 

II. ESG REPORT

EU legislation​​: Corporate Sustainablitiy Due Diligence Directive (CS3D) 
Hungarian legislation: Act CVIII of 2023 (Hungarian ESG Act) and related detailed legislation

Hungary was one of the first countries to adopt the ESG Act in line with EU regulations. One of the central elements of the government's strategy is to promote the ESG compliance of SMEs, to support supplier companies and to raise ESG awareness among enterprises.

Reporting and auditing obligations under the ESG Act


The scope of the Act (Article 1 (1) of Act CVIII of 2023) covers companies established in Hungary:

a) a large enterprise that is a public-interest entity, where any two of the following three indicators exceeded the following thresholds on the balance sheet date in the financial year preceding the financial year: 
​aa) the balance sheet total was over HUF 10,000 million, 
ab) annual net turnover was more than HUF 20,000 million, 
ac) the average number of employees during the financial year was over 500; 
b) a large enterprise, where any two of the following three indicators exceeded the following thresholds on the balance sheet date in the financial year preceding the financial year: 
ba) the balance sheet total was over HUF 10,000 million, 
bb) annual net turnover was more than HUF 20,000 million, 
bc) th​e average number of employees during the financial year was over 250;
c) small and medium-sized enterprises which are considered to be enterprises of public interest.

The regulations on due diligence for sustainability purposes will be applied for the first time by the company under point a) for its activities in the financial year 2024 and its first ESG report in the year 2025;
an undertaking under(b) shall apply it in respect of its activities for the financial year 2025;
an undertaking under(c) shall apply it in respect of its activities for the financial year 2026 (Article 54 of Act CVIII of 2023 ).

Basic obligations of the concerned undertakings (Article 13 of Act CVIII of 2023 )​:
  • Establishment of a risk management system,
  • Establishment of an internal responsibility strategy and system,
  • Conducting regular risk analyses,
  • Prevention and corrective action policy for the undertaking's own business and for its direct suppliers,
  • the declaration of direct suppliers in respect of the risks incurred.


The ESG authority activity is carried out by the Regulated Activities Supervisory Authority​ www.sztfh.hu​. 

The Regulation issued by the Regulatory Activities Supervisory Authority (SZTFH) (SZTFH Regulation Nr. 13/2024) sets out in detail the requirements, the form and content of the report.

The "ESG Questionnaire" published by the SZTFH is an important tool for supply chain due diligence, which streamlines the practices of business partners and maximizes the demands expected from the data reporting.  The questionnaire contains a set of questions in a tabular format that form the basis for ESG reporting, ensuring that enterprises are able to provide the right data. The questionnaire is available on the SZTFH’s website​.

ESG reporting and auditing (Articles 23, 23/A and 24 of Act CVIII of 2023)​


The enterprise shall prepare an ESG report on the fulfilment of its due diligence obligations for sustainability purposes for the previous financial year, which it shall have audited by an ESG certifier and shall send to the Authority within six months after the end of the financial year and make publicly available on its website.
​
The exemption under Article 23/A of Act CVIII of 2023 (ESG Act) applies to subsidiaries whose parent company is an undertaking within the meaning of Article 1(1) of the ESG Act having its registered office in Hungary. Under the ESG Act, the accounts prepared by a parent company having its registered office abroad are not accounts within the scope of the ESG Act​. ​

III. Recommendation of the Hungarian National Bank (MNB) on the assessment of ESG information of credit applicants​

According to the Recommendation, credit institutions and financial corporations should ask companies seeking to take out new loans to complete a minimum set of questions with a standardized wording and criteria.

The purpose of the standardized questionnaire is to enable the financial institutions concerned, and through them the applicant companies themselves, to assess ESG risks when assessing loans. The questionnaire survey is the first step towards integrating ESG risks into the risk management processes of credit providers. 

The MNB has aligned the questionnaire with the requirements for ESG reporting for sustainability due diligence purposes under domestic legislation, which will reduce the administrative burden for companies applying for loans.

The supervisory regulation will be phased in between 1 January 2025 and 1 July 2028.  The questionnaire will apply from July 2025 for corporate lending exceeding HUF 500 million (or EUR 1 million for non-resident foreign borrowers), from July 2026 for corporate lending exceeding HUF 350 million, from July 2027 for corporate lending exceeding HUF 200 million and from July 2028 for corporate lending exceeding HUF 100 million. 

The Recommendation expects financial institutions to publish a prospectus on their websites from 1 January 2025, drawing customers' attention to their expectations regarding the collection of ESG information​.

Summary:


Many companies are affected by the whole value chain approach of ESG rules and the due diligence obligations of the supply chain.

There is a significant administrative burden for companies: e.g. completing and evaluating ESG questionnaires and MNB questionnaires, conducting supplier ratings, collecting information, for which resources need to be allocated​.​

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