The amendment's main objective is to simplify companies' obligations and compliance with sustainability and ESG legislation based on practical experience. On 17 December 2024, Parliament adopted a package of proposals for the amendment of the ESG Act, which now awaits the signature of the President of the Republic. The new rules will enter into force on the 30th day following their publication (except for the fine regulations in Article 145).
New Rules on the Scope of the Law
The law narrows the scope of the companies that are among the first to be covered, as companies of public interest must comply with two of the values specified in the law for two consecutive years instead of one. This means that those public interest entities not covered by the amendment and those that fall into the category of "large companies" will be subject to sustainability screening from 1 January 2025.
Regarding scope, it is also important to note the involvement of regulated financial service providers: they will be subject to the rules for ESG contributors. From now on, - since Article 1(2) is repealed - the law does not cover the investment or exposure of an undertaking even if, because of its size, purpose, or proportion, the role or approach of sustainability is determinative in the undertaking's strategy, policy or rules.
Materiality or Double Materiality?
The amendment replaces the term "double materiality" with " materiality" in the legislation. However, this change is merely a codification simplification; the substance of the sustainability obligations has not changed.
The principle of double materiality still applies; subjects must examine:
- the impact of the organization's operations on the environment, society, and stakeholders, as well as
- the impact of the environment, society, and governance factors on the financial performance of the organization.
Change at Suppliers
A new rule will require businesses covered by the Act to provide a free training program to their suppliers to help them comply with their supplier reporting obligations. This will support the Hungarian SMEs and impose new duties on large companies.
Simpler and More Flexible Compliance
Data can be provided using the supplier questionnaire to those who voluntarily or contractually undertake to provide ESG data or are legally obliged to do so, thus reducing the burden on them. The amendment also allows companies to conduct risk analysis at an appropriate date - but at least once a year - rather than by 30 June each year.
Supervisory Authority for Regulatory Affairs
The remit of the Authority is also changing, so that the obligation to keep a register of the undertakings concerned no longer falls within its remit. In addition, the Authority is obliged to publish the reports submitted before 30 June of each year by 30 September of each year. The provisions on the registration of ESG consultants will also be amended and it will be possible to amend ESG reports already filed, a detailed rule which is likely to make life easier for many companies. The part of the ESG Act that allows the FSCA to impose fines for failure to comply with sustainability due diligence obligations from 1 January 2026 has also been clarified, and covers cases where ESG reports do not comply with the requirements of the ESG Act or other related legislation. So it is really only 1 year to prepare without applying a sanction.
Overall, the amendment to the ESG Act brings about several changes that may simplify the application of the ESG Act. However, it is conceivable that the rules on due diligence for sustainability purposes will change further in light of ongoing experience with applying the law.