ESG Act amended: Sustainability alert

FM newsroom – ESG, sustainability. With the entry into force of the ‘ESG Act’ on 1 January 2024, Hungary will now also regulate the sustainability due diligence of supply chains and the related data collection and reporting. 

Under the ESG Act, Hungary will also regulate the sustainability due diligence of supply chains and the related data collection and reporting. This will require establishing a complex risk management system and/or adding and developing new aspects to the existing risk management system. In addition to compliance with the requirements, the largest domestic companies and listed companies should also be prepared for an audit by the Supervisory Authority for Regulated Activities – pwc informs.

The ESG Act, which takes into account the CSDDD (Corporate Sustainability Due Diligence Directive) directive of the EU, which is expected to enter into force in the near future, and the German Lieferkettengesetz (better known as LkSG) supply chain law, which already affects some Hungarian suppliers, aims to prepare the Hungarian companies to preserve their competitiveness. By adopting Bill T/7732 to amend certain economic and asset management laws, the Parliament further specified the ESG due diligence requirements outlined in January, which will enter into force on 1 July 2024.

What changes will the amended ESG Act bring?

1. ESG questionnaire

The amended legislation will include a so-called “ESG questionnaire”, which will contain all essential elements in connection with which data collection and handling from an ESG point of view becomes mandatory. Any additional data requirements beyond this will require regulatory approval – this is intended to significantly reduce the administrative burden for businesses.

2. Auditor independence

With this amendment, the legislator also seeks to further strengthen the independence of certifiers. The amendment means that not only the certifier himself but also his related person may not carry out ESG certification or qualification work on reports for which he has provided advice in the previous two years. It is worth paying attention to when choosing a certifier and a consultant.

3. Consolidation

The amendment to the ESG Act allows for a consolidation exemption – i.e. if a parent company undertakes to fulfil its obligations regarding the subsidiary, the latter is exempt from the reporting obligation – the due diligence obligation remains regardless.

4. Fine

Although the law refers to a fine for non-compliance, the amount and criteria still need to be discovered, and clarification is expected by regulation. However, the amendment includes the amount of the procedural fine that the authority will impose in case of a procedural error – if someone violates the ESG obligations due to their own fault and thus obstructs the official procedure. The item initially meant an amount that could be imposed between HUF 500,000 and HUF 1,000,000, but after the amendment, the lower limit is no longer defined, only the (still) maximum amount of HUF 1,000,000.

Although this is the first fully ESG-related Hungarian law, it does not cover all ESG-related obligations of companies. Given that the EU regulations are binding in Hungary even without being included in Hungarian legislation, compliance with the EU Taxonomy has already been a fundamental requirement for companies covered by the scope, and the provisions of the Corporate Sustainability Due Diligence Directive were implemented not in the ESG Act but in the Accounting Act.


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