DLA Piper Hungary Senior Associate and ESG Practice Coordinator Dora Dranovits talks about ESG in Hungary in 2025.
CEELM: Are there any ESG-related pieces of legislation that will impact your work in 2025 in Hungary?
Dranovits: With large entities becoming in scope for both sustainability reporting (including EU Taxonomy disclosures) and ESG reporting, we expect that the Accounting Act and the ESG Act – together with its implementing decrees – will be in major focus for our clients in 2025 in the field of ESG.
Another development keeping ESG reporting rules in the news is the Omnibus initiative, the EU Commission’s efforts to simplify, streamline, and – if necessary – reduce the reporting obligations of European companies by comprehensive harmonization and amendment of the CSRD, EU Taxonomy Regulation, and CS3D. At the time of writing, the first package by the Commission is promised to be published on February 26, 2025, and the procedure is worth following as it may have a serious impact on current reporting and disclosure obligations.
Companies in the financial sector may look out for the revised SFDR rules expected this year as well as certain implementation-related documents regarding the ESG rules of the new EU banking package, while companies in the CFGR and industrial sectors will have to start preparing for practical issues of EUDR and watch out for the first working group report under the Eco-Design Regulation to see when the eco-design requirements for their products may be expected to be out.
CEELM: Up until now, has Hungary been relatively up to date with implementing ESG-focused regulations or lagging? Do you expect that trend to continue in 2025?
Dranovits: While maybe lagging a bit in certain areas (such as waste management), we find Hungary to be up to date with implementation and even being ahead of the rest of Europe in regulating sustainability due diligence.
The ESG Act, while not being a direct implementation of the CS3D, has similar regulatory goals to ensure that companies have an integrated ESG risk assessment and management system in place, covering risks not only from their own operation but the operation of their upstream and downstream supply chain.
CEELM: Between the “E”, “S”, and “G” components, which one would you predict will be in the main spotlight in Hungary in 2025? Why?
Dranovits: We predict that the “E” component will remain in the main spotlight. That is due to several factors: the regulators’ activities in environmental matters, the “environment-heavy” nature of sustainability reporting, and the fact that in Hungary – and in Europe as a whole, protection of human rights, social issues, and governance are maybe less problematic from a sustainability point of view.
CEELM: What would you identify as the main challenges faced by companies in terms of ESG matters at the moment in Hungary, and how likely is it in your view that these challenges will be addressed in 2025?
Dranovits: As mentioned above, 2025 is the first year in which large entities shall prepare an ESRS-based sustainability report and an ESG report under the ESG Act. The two partly overlapping reporting systems will need significant resources and expertise as well as bring great challenges to Hungarian companies, especially if they want to incorporate sustainability reporting and due diligence in their long-term strategy and entire operation and not treat it as just a tick-the-box exercise.
It will take a lot of time and effort to set up the data collection and risk management systems that are operable, effective, and properly aligned with the company’s operation. In addition, part of the sustainability reporting is transition planning and ESG goal setting which is a thin line to walk – be sufficiently ambitious with your goals but avoid aiming too high and risk the reputational loss (at best) or greenwashing claims when not being able to perform.
The challenges must be addressed in 2025 but may only be successfully tackled if the necessary financial and human resources are allocated. Notwithstanding, CSRD-based and ESG Act-based reporting regimes are very new and may be even changing as we speak.
Properly navigating these new regimes and creating and fine-tuning the corresponding internal processes and strategies will keep the companies busy for years.
Also, the first CSRD reports of listed large entities are coming out in the first and second quarters that are public and to be disclosed in the financial statements and on company websites. As a result, the reports will be up for public scrutiny and greenwashing and other ESG-related claims may be expected to follow and cause challenging times for the companies involved.
This article was originally published in Issue 12.1 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
