In Hungary, as a member of the European Union, we adhere to the rules imposed by the EU on its member states. The regulatory landscape has evolved, compelling an increasing number of companies to integrate sustainability-related disclosures into their yearly financial reports, known as non-financial or sustainability reports.
According to “The European Green Deal” the EU aims to transform the Union into a modern, resource-efficient and competitive economy with net zero emission of greenhouse gases by 2050, to protect, conserve and enhance the Union’s natural capital, and to protect the health and well-being of Union citizens from environmental risks and impacts. The Green Deal aims to decouple economic growth from resource use, and to ensure that all regions and Union citizens participate in a socially just transition to a sustainable economic system, whereby no person and no place is left behind.
To reach these goals the European Parliament and the Council have adopted a number of legislative acts as part of the implementation of the Action Plan on Financing Sustainable Growth. To realise these goals, the European Parliament and the Council have enacted legislative acts, including the Accounting Directive (2013/34/EU), the Non-Financial Reporting Directive (2014/95/EU), and the recently amended Corporate Sustainability Reporting Directive (2022/2464(EU), CSRD). These directives establish frameworks for non-financial reporting and disclosure standards. Under the CSRD, approximately 50,000 European companies and around 10,000 non-EU companies will now be impacted, significantly widening the scope compared to the previous NFRD.
These requirements are partly directly binding and partly transposed into national law. Hungary has already transposed the CSRD into national law through the effective ESG Act, operational since January 1st, 2024. The Act places substantial obligations on businesses, including the annual preparation of an ESG sustainability report, establishing risk management systems, implementing complaint handling procedures (whistleblowing system), developing internal responsibility strategies, conducting regular risk analyses, and fulfilling ESG data provision obligations.
For EU companies, the CSRD officially came into effect on January 1, 2024. The initial reporting obligation applies to companies already subject to the NFRD, necessitating compliance with the amended regulations and reporting for the fiscal year 2024 by 2025. Other large companies not initially subject to the NFRD must commence reporting for the fiscal year 2025, starting from January 1, 2026. Small and medium-sized enterprises (SMEs) will begin reporting on January 1, 2027, for the fiscal year 2026.
For non-EU companies, including private entities, ESG reporting is mandated if they have a net turnover (revenue) generated in the EU exceeding €150 million for two consecutive financial years. Furthermore, these companies must have either a large EU or EU-listed subsidiary or a branch generating more than €40 million in net turnover. The sustainability report produced by non-EU companies covers various ESG topics such as climate change, biodiversity, worker conditions, and human rights.
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