The new ESG law: will sustainability be integrated into corporate strategies?

Author: Mária Farkas 

Mexico is one of the world’s leading exporters of beer. In 2022, the country’s President López Obrador called on breweries, including Heineken, to relocate from the country’s northern regions, given the years of drought and water shortages. This is just one example of how the climate crisis could affect companies’ strategies. 

Except for good practice by leading companies, corporate practice in the past has often isolated sustainability to specific operational activities. In many companies, this has been reduced to activities such as simply managing waste in line with legislation or measuring carbon footprints without consequences. ESG, i.e. environmental, social and governance considerations, could not reach the strategy of companies, nor the status quo of products and services. 

But the climate crisis and consumer awareness are increasingly influencing business decisions. In the European Union, dozens of directives and a range of legislation have been adopted in the last few years, all pushing companies to integrate ESG considerations. Examples include CSRD, ESRS, CSDDD, SFRD and Taxonomy, to name but a few. The Hungarian ESG Act, which was adopted by the Hungarian Parliament in December 2023, is also in line with these international legislative trends. This law will directly affect around 2500 companies and will have a significant impact on their supply chains. The legislation requires companies to “consider long-term sustainability options and ensure that they are implemented in their business strategy”. 

Irén Márta, as Executive Director of the Business Council for Sustainable Development in Hungary (BCSDH), promotes sustainable transition by sharing recommendations and concrete business solutions to address the root causes of problems. The BCSDH is a community of CEOs from companies committed to sustainability, working together to accelerate the systemic transformations needed for a climate-neutral, nature-positive and more equitable future. Irene Márta cited many good examples of BCSDH member companies and said she considers it fortunate that the European Union is at the forefront of promoting corporate sustainability. However, she stressed that the next few years would determine whether sustainability requirements will become just another administrative and financial burden for companies or whether they will bring about real changes in the way the economy works. 

The professional community has long agreed that the best driver of business transformation is when financial performance is linked to sustainability performance. According to Irén Márta, the ESG metrics are designed to provide an accurate situational assessment of companies’ sustainability performance. These KPIs focus management’s attention on sustainability challenges and provide the necessary data to make sustainability decisions. As a result, companies not only become more sustainable, but also more competitive, as optimising environmental and social impacts also leads to cost reductions. 

Currently, listed companies often receive different ESG ratings from different rating agencies, which makes access to finance more difficult and increases its cost. It would be important for ESG rating agencies to be able to rate companies based on company reports, ESG metrics and public methodology. The ESG law supports this by building an institutional framework and making methodologies public. 

Irén Márta highlighted the huge potential of strengthened supply chains from an ESG perspective. These partnerships help the companies operating within to develop good practices that are cost-effective, help to clean up the market and make the economy more resilient to various crises. 

In conclusion, sustainability needs to be embedded in corporate strategies and economic actors need to move gradually from a competitive to a cooperative approach to address global challenges. The academic world must support this process by providing appropriate training for future leaders and by identifying methodologies and good practices in the field of research.