Tens of thousands of domestic companies must comply with ESG rules this year

According to the relevant legislation, compliance with ESG (environmental, social and governance) criteria must cover the entire value chain of the large companies concerned, including their direct and indirect suppliers. This means that the responsibility of the companies concerned extends to monitoring the operations of their suppliers, which includes, among other things, their resource use, waste management, carbon dioxide emissions practices (environmental aspects), working conditions, workplace safety (social aspects), and ethical business practices, anti-corruption measures and transparency (corporate governance aspects).

In order to ensure compliance with the above conditions, large companies that are required to report on ESG often apply general terms and conditions (GTC), which are mandatory for all suppliers. The GTC may require suppliers to comply with the relevant ESG rules in addition to complying with the code of ethics or conduct applied by the customer. In addition, the companies in question often stipulate the right to regularly check all their suppliers who accept the GTC as part of a customer audit.

“The sustainability due diligence obligation is also prescribed by the Regulation of the Hungarian Regulatory Authority (SZTFH). This Regulation also contains in detail the questions that form the basis for the due diligence of suppliers. At the same time, if a supplier also supplies to a large foreign company that may have ESG data requirements that exceed the scope of Hungarian regulations, then it must also comply with this broader requirement”

– points out Dr. Zoltán Puskás, attorney at Moore Legal Hungary.

Building on the results of the ESG audit, companies must also develop a complex risk management system, which includes risk analysis, as well as preventive and corrective measures. Corrective measures may include suspending business relationships or even permanently terminating them in order to minimize the risks that arise.