Overview
Considering the many environmental changes that have occurred in recent years, environmental awareness has also increased in the trade sector.
The European Union, as a community of shared values, ranks second in world trade and therefore carries a special responsibility regarding environmental protection and human rights. This is why the EU created the CSDDD, as a step towards ensuring decent working conditions for people while also advancing environmental protection.
The CSDDD is an EU directive on corporate due diligence in the sustainability sector. It requires large companies to respect human rights and environmental protection within their global supply chains. This means, that companies must identify, prevent or mitigate risks within their own business operations, at subsidiaries and throughout the whole supply chain. Following the Omnibus I amendments of the CSDDD, companies may focus on areas where impacts are most likely and most severe, based on reasonably available information.
General timeline
The Directive entered into force on 25 July 2024. Implementation by the Member States was initially to take place within two years but following an extension of this deadline under the ‘Stop-the-Clock Directive’ (Directive (EU) 2025/794) and the Omnibus I Directive, the EU CSDDD must be implemented into national law by 26 July 2028. Under the amended CSDDD, Member States must adopt and publish national transposition measures by 26 July 2028 and apply them from 26 July 2029, except for the Article 16 reporting measures, which apply for financial years starting on or after 1 January 2030.
What Hungarian companies must consider
Corporate liability
Under the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), corporate liability is split into two enforcement mechanisms: administrative supervision and civil liability.
Administrative supervision
Member States will designate one or more authorities to supervise and enforce the rules, including through injunctive orders and effective, proportionate and deterring penalties.
Civil liability
Civil liability is one of the most important enforcement mechanisms. It is determined by the procedural civil laws of the individual member states. If a court finds a company liable for damaging the environment or violating human rights, the company must provide full compensation for the damage they caused. Furthermore, there is no direct civil liability for managing partners of such companies according to the CSDDD. However, it operates as an instrument towards national personal liability. Because once a court finds that the company acted with fault or negligence, it becomes a lot easier for shareholders or regulators to argue that the directors breached their statutory “duty of care” under national corporate law.
This paves the way for personal liability of managing directors.
Sanctions
The CSDDD dictates that the company itself is civilly liable for damages if it intentionally or negligently fails to comply with its due diligence obligations, leading to human rights abuses or environmental damages. It also creates severe administrative corporate penalties, including fines up to 3% of the company’s global net turnover. Additionally, if a company fails to comply with a decision imposing a pecuniary penalty within the applicable time limit, a public statement naming the company responsible for the breach and the nature of the breach shall be made.
Which companies are affected by it
Companies with 5,000 or more employees and a global net annual turnover of 1.5 billion Euros are covered by the scope of the Directive. Companies from third countries (non-EU) are also covered if they generate an annual turnover of more than 1.5 billion Euros in the European Union including on a consolidated basis for ultimate parent companies of groups.
Franchising and licensing arrangements can also bring companies or ultimate parent companies of groups into the scope where the Directive’s royalty and turnover thresholds are met. Small and medium-sized enterprises do not fall within the scope of the Directive.
Costs for companies
Companies that fall within this scope will have to cover the costs for:
- establishing and operating the due diligence process,
- all costs related to appropriate measures for preventing, mitigating, ending or minimising adverse impacts, where needed.
Hungarian national ESG Act and CSDDD
Hungary enacted its domestic ESG law (Act CVIII of 2023) before the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD), creating an early local framework for supply chain reporting and responsibility. The Hungarian ESG framework shares core goals with the EU’s CSDDD by focusing on supply chain due diligence and risk management. However, because the CSDDD introduces much heavier civil liability rules, the Hungarian parliament will be required to amend domestic corporate laws before 2028 to accommodate the EU’s stricter liability standards.
The Hungarian ESG Act focusses on administrative compliance and local reporting under EU accounting rules. It applies to companies meeting at least two of these criteria:
- a balance sheet total over HUF 10 billion
- net turnover over HUF 20 billion
- more than 250 employees
The Hungarian ESG Act does not establish an explicit, separate civil liability regime for failing to comply with sustainability due diligence. The act is a supervisory, compliance-based framework. Its enforcement relies mainly on administrative fines handled by the Supervisory Authority for Regulated Activities.
In contrast, the CSDDD specifically mandates a strict civil liability regime for supply chain damages. It not only relies on corporate fines, but also public statements on companies that fail to comply. The ESG Act functions as a reporting mechanism for violations that occur, while the CSDDD makes companies take responsibility to prevent, mitigate and end human rights violations and environmental harm.
Key takeaways
Hungarian companies need to know the liability standards are going to be amended in accordance with the EU Directive. Civil liability for environmental or human rights infringements will now be governed by the domestic laws of each member state. This significantly puts managing directors at risk, as they face indirect exposure for being held civilly liable under domestic laws because of how the CSDDD functions.
