Dr. Géza Katona, LL.M.
Katona & Partners Attorneys’ Association, Budapest
Introduction
The Corporate Sustainability Reporting Directive (CSRD), formally Directive (EU) 2022/2464, represents a significant evolution in the European Union’s regulatory framework governing environmental, social, and governance (ESG) transparency. Hungary has transposed the CSRD into domestic law via Act CVIII of 2023 (commonly referred to as the ESG Act), amending the Hungarian Accounting Act (Act C of 2000) with new provisions effective for fiscal years beginning on or after 1 January 2025.
This legal development places sustainability reporting 2025 at the center of corporate obligations in Hungary. It imposes significant compliance responsibilities on companies, affecting corporate governance structures, financial reporting systems, strategic planning, and even audit procedures. Understanding the scope, content, and compliance mechanisms of the CSRD is crucial for all stakeholders — including management boards, compliance officers, financial directors, legal advisors, and ESG professionals.
In this article, we explore the key legal and financial obligations arising from the ESG Act, interpret them in light of European ESG law developments, and provide practical guidance for corporate ESG compliance in Hungary. We also outline how legal ESG advisory can support companies navigating this rapidly evolving terrain.
Legal Basis and Transposition: Hungary’s ESG Act and the CSRD
The CSRD replaces the Non-Financial Reporting Directive (NFRD), substantially expanding both the scope and depth of ESG disclosure obligations. Hungary’s transposition of the CSRD was implemented through Act CVIII of 2023, which introduced Chapter III/A into the Hungarian Accounting Act, entitled “Sustainability Reporting”.
This chapter establishes the legal framework for sustainability disclosures and introduces key definitions, audit requirements, data publication standards, and enforcement mechanisms.
The legislative rationale is clear: enhancing accountability, promoting capital allocation toward sustainable activities, and ensuring comparability of ESG data across the EU Single Market. These goals reflect the EU Green Deal and Sustainable Finance Agenda, of which the CSRD is a central pillar.
Scope of Application: Which Companies Must Comply?
Under Section 95/M of the amended Accounting Act, sustainability reporting obligations apply to companies that exceed at least two of the following three thresholds on the balance sheet date of two consecutive financial years:
- Balance sheet total: Exceeds HUF 10 billion
- Net turnover: Exceeds HUF 20 billion
- Average number of employees: Exceeds 250
These thresholds follow the criteria in the CSRD and ESRS implementation guidelines. Notably, Section 95/N mandates a consolidated assessment, meaning that group-wide obligations may apply even if the individual Hungarian entity is below the threshold. This is particularly relevant for multinational groups with Hungarian subsidiaries.
Further, Hungarian subsidiaries may be exempt from standalone reporting if their EU or EEA parent company prepares a CSRD-compliant consolidated report that includes the subsidiary’s data and meets publication, audit, and accessibility requirements (Section 95/S). However, this exemption must be carefully evaluated in practice, as it is contingent on strict procedural compliance.
What Must Be Reported: Content of the Sustainability Report
The sustainability report must be prepared in accordance with the European Sustainability Reporting Standards (ESRS) adopted by the European Commission under Delegated Regulation (EU) 2023/2772.
The ESRS require companies to report on material ESG factors, including:
- Environmental topics: climate change, pollution, water and marine resources, biodiversity, and circular economy practices
- Social topics: employee conditions, diversity and inclusion, human rights across the value chain
- Governance topics: board oversight, risk management, ethical business conduct, anti-corruption mechanisms
Reports must follow the double materiality principle, covering both how ESG factors affect the company’s financial position (outside-in), and how the company impacts society and the environment (inside-out).
Companies must disclose their sustainability targets, policies, key performance indicators (KPIs), due diligence practices, and risk assessment methodologies. This level of granularity represents a significant shift from past reporting obligations under the NFRD.
Publication, Audit, and Accessibility Requirements
Sustainability reports must be included in the company’s annual report, filed with the financial statements, and made publicly accessible on the company’s website. This ensures full transparency for investors, regulators, and the public.
Crucially, sustainability reports must be subject to limited assurance by an independent statutory auditor or audit firm. This requirement will increase over time, potentially moving toward reasonable assurance in future legislative phases.
The audit requirement introduces significant implications for internal control systems. Companies will need to ensure data accuracy, establish reliable ESG data collection mechanisms, and integrate sustainability into their internal audit and risk management frameworks.
CSRD and the EU Taxonomy Regulation: Interlinked Reporting Duties
The CSRD must be interpreted in conjunction with the EU Taxonomy Regulation (EU) 2020/852, which defines what constitutes an “environmentally sustainable” economic activity. For companies subject to both frameworks, the sustainability report must disclose:
- Proportion of turnover, CapEx, and OpEx aligned with the EU taxonomy criteria
- Assessment of whether economic activities contribute to environmental objectives (e.g. climate change mitigation)
- Compliance with the “Do No Significant Harm” (DNSH) principle
- Alignment with minimum social safeguards (e.g. OECD Guidelines, UN Guiding Principles)
This requires cross-functional coordination between finance, compliance, legal, and sustainability teams. Taxonomy alignment is not merely a technical task – it involves profound analysis of the company’s business model, operations, and investments.
Strategic Implications and Key Compliance Actions for 2025
Meeting corporate ESG compliance standards under the new Hungarian ESG law and CSRD is not merely a formal obligation. It requires strategic readiness and a comprehensive ESG governance framework.
We recommend the following concrete steps for companies operating in or through Hungary:
- Gap Analysis: Conduct a legal and operational gap analysis comparing current ESG reporting practices with CSRD and ESRS requirements.
- ESG Governance Structure: Establish clear roles and responsibilities, appoint ESG compliance officers, and define internal ESG oversight at the board level.
- Data Collection Systems: Build or upgrade ESG data infrastructure capable of capturing qualitative and quantitative metrics in line with ESRS standards.
- Audit Preparedness: Ensure audit trails and documentation are available and understandable for third-party auditors.
- Group-Level Coordination: In multinational settings, align ESG strategy and reporting across group entities, especially for consolidated reporting and exemption eligibility.
- Training and Awareness: Educate management and staff on ESG compliance duties and ensure cross-departmental collaboration.
- Legal Advisory and Documentation: Engage legal counsel to review ESG-related contractual clauses, risk disclosures, and board resolutions, and to align ESG strategy with corporate statutes and bylaws.
Penalties, Enforcement, and Legal Risks
Although detailed enforcement mechanisms under the Hungarian ESG Act are still emerging, non-compliance can lead to:
- Administrative fines by accounting supervisory bodies
- Civil liability for misleading ESG statements (“greenwashing”)
- Investor disputes and reputational damage
- Regulatory investigation by Hungarian or EU authorities
Given the mandatory audit and public nature of ESG reports, the legal exposure of company executives, auditors, and board members is significantly increased. ESG disclosures must therefore meet the same standards of accuracy and integrity as financial reporting.
ESG Legal Advisory in Budapest: How We Assist Clients
At Katona & Partners Attorneys’ Association, we provide end-to-end ESG legal services to companies seeking to meet Hungary’s evolving sustainability reporting 2025 requirements. Our support includes:
- Legal analysis of CSRD applicability to domestic and multinational groups
- Drafting and reviewing ESG policies and disclosures
- Group-wide ESG structuring, including subsidiary exemption assessments
- Legal support for ESG-related risks in M&A transactions and investment projects
- Representation in regulatory procedures or disputes related to ESG compliance
- Cooperation with auditors, ESG consultants, and internal legal teams
We work closely with clients to ensure not only formal ESG compliance, but also strategic integration of sustainability into corporate governance and decision-making.
Conclusion
The CSRD represents a paradigm shift in the EU’s sustainability landscape. Hungary’s implementation of this directive through the ESG Act and the amended Accounting Act imposes complex and far-reaching obligations on many companies from 2025 onward.
However, corporate ESG compliance should not be viewed as a mere cost of doing business. It offers a unique opportunity to create long-term value, enhance reputation, attract capital, and build stakeholder trust. Sustainability is becoming the new baseline for corporate legitimacy in the 21st century.
For companies in Hungary, 2025 is not the beginning of the journey — it is the deadline.
Contact Us for Tailored ESG Legal Support
Dr. Géza Katona, LL.M. – Attorney-at-Law (Rechtsanwalt)
Partner – Corporate and ESG Law
Katona & Partners Attorneys’ Association
📍 H-1106 Budapest, Tündérfürt utca 4.
📞 +36 1 225 25 30 | 📱 +36 70 344 0388
📠 Fax: +36 1 700 27 57
✉️ g.katona@katonalaw.com
🌐 www.katonalaw.com