ESG conference: global outlook – Hungarian perspective
In December 2023 the Hungarian Parliament adopted the ESG Act by a large majority, which entered into force on 1 January 2024. A conference organised by the Climate Policy Institute took a closer look at the opportunities and challenges of the new law.
This article is available for reading in Trade magazin 2024/8-9
The Hungarian ESG law
The European Union has recently adopted the CSRD (Corporate Sustainability Reporting Directive) directive, which was published in the Journal of the European Union on 14 June. The Directive aims to ensure that ESG aspects are widely applied in the economic life of the EU, while allowing member states to decide independently on certain issues. Hungary’s ESG Act defines precisely what is considered a large company or an SME of special interest – the definition is based on sales revenue, balance sheet total and number of employees. Companies that fall into the categories specified by the law are obliged to provide data and comply with other requirements. Firms have until 1 January 2026 at the latest to prepare, after which the authority may impose sanctions for non-compliance.
From preparation to sanctioning
The conference discussed the need to create the conditions to ensure that Hungarian companies remain competitive, some of which are the following:
Professional preparation:
presently about one third of large Hungarian companies are aware of the ESG concept, from which 17% are familiar with the Hungarian law – so 83% don’t even know at the moment what they would soon have to comply with. Only 7% of Hungarian SMEs are familiar with the acronym.
Simplifying the ESG reporting process:
even for large companies, the many types of ESG rating systems and reporting requirements constitute a challenge, which needs to be harmonised. Making the ESG reporting process simple and cost-effective is key.
Introduction of sanctioning:
the ESG Act lays down strict sanctions for non-compliant companies to encourage complying with the law. The Hungarian Competition Authority (GVH) has a leading role in guaranteeing that greenwashing is avoided.
Establishing an ESG management platform:
establishing a stand-alone national platform to standardise ESG reporting. ESG reporting requirements will be developed in consultation with the national ESG council, reducing the burden on businesses and ensuring easier compliance.
National specification
As long as EU rules allow, Hungarian firms are required to complete a single standardised questionnaire on their operations, corporate policies and plans. This questionnaire offers an opportunity to reassess concepts and metrics. It is interesting to note that international rating standards often overemphasise the environmental footprint (roughly 70% of the time this is the main focus because of the pressing climate problem), while information on social and governance aspects is disproportionately underweighted in the reports. In contrast the questionnaire used in Hungary was expected to give adequate weight to the commitment of companies to families. There are significant economic benefits to be gained for firms that take ESG seriously: recent surveys reveal that firms which adopt ESG principles can achieve a 5.6% increase in dividends and at least a 20% hike in revenues.
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