As of the 2024 financial year, companies in Hungary are facing new and stringent ESG (Environmental, Social, and Governance) reporting requirements under Act CVIII of 2023 (ESG Act). While large companies may already be familiar with the relevant EU directives (notably the CSRD and the CSDDD), the Hungarian regulations present unique challenges, especially for local subsidiaries of multinational corporations.
ESG reporting obligations in Hungary
The ESG Act mandates annual ESG reports, with obligations phased in from the 2024 financial year, and the first reports due in 2025. Initially, this affects large companies with over 500 employees classified as public-interest entities (in particular, publicly listed companies). By 2025, the scope will extend to all companies meeting at least two of the following thresholds, assessed based on the last financial year: a balance sheet total of HUF 10bln, net turnover of HUF 20bln, or 250 employees. From 2026, it will also apply to small and medium-sized public-interest entities. The ESG Act requires affected companies to conduct sustainability due diligence and certify their ESG reports detailing this process to ensure compliance with Hungary's specific ESG regulations.
The Supervisory Authority for Regulated Activities (SZTFH) oversees compliance with ESG reporting obligations and issues secondary regulations for their implementation. As ESG regulations continue to evolve, recent updates include the adoption of detailed rules, with more expected soon. Notably, the 13/2024 (VIII. 15.) SZTFH Decree outlines the minimum requirements for ESG reports and introduces a questionnaire for direct suppliers that must be annexed to the report. Additionally, the SZTFH is developing a Management Platform to facilitate the preparation and digital submission of ESG reports, streamlining the process for companies during regulatory audits.
The challenge for multinationals: local reporting required
One significant aspect of Hungary's ESG reporting framework is its stance on foreign parent companies. While Act C of 2000 (Accounting Act) allows the use of consolidated group-level reports for the purposes of sustainability reporting, Hungarian subsidiaries can only be exempted from local ESG reporting (under the ESG Act) if their parent company is also based in Hungary. Therefore, even if a foreign parent company prepares a consolidated ESG report that complies with EU standards, Hungarian subsidiaries must still prepare and certify their own reports locally. The foreign consolidated report, regardless of its thoroughness, does not suffice.
Why does this matter?
For multinational groups operating in Hungary, this requirement poses a strategic and operational challenge. Reliance on a consolidated report from a foreign parent company is not an option. Instead, each Hungarian subsidiary must engage with the local ESG reporting process, including due diligence, compliance checks and certification. This approach emphasises Hungary's commitment to ensuring ESG compliance on a local level, but it also increases the administrative burden on companies.
Compliance strategy
To navigate these obligations successfully, multinational companies should:
- Assess local obligations: Determine which subsidiaries fall under the ESG Act's reporting requirements.
- Develop local ESG reports: Ensure that each Hungarian subsidiary develops its own ESG report, aligned with local regulations.
- Revise supplier agreements: Comprehensively review supplier agreements in place and the relevant templates to include contractual clauses necessary to maintain compliance with ESG requirements in the future.
Hungarian companies subject to ESG reporting from 2025 onward must begin preparations now to stay ahead of these evolving regulations. Unlike the sustainability report required under the Accounting Act, a consolidated report from a foreign parent company will not suffice for ESG reporting. It is highly recommended to engage local advisers to ensure that the ESG reporting of such local subsidiaries fully complies with Hungary's specific requirements.
By Gergely Horvath, Attorney at Law, and Barbara Darcsi, Associate, Schoenherr
