European Union: ESG Reporting Obligations In Bulgaria, Croatia, The Czech Republic, Hungary, Romania And Slovakia

A status update on the CSRD implementation

The EU Corporate Sustainability Reporting Directive (EU) 2022/2464 (the "CSRD") entered into force on 5 January 2023. From that date, the transposition clock has been ticking for Member States with a transposition deadline expiring on 6 July 2024.

A phased approach

The CSRD is phased in and will apply to businesses of different sizes in different timeframes. The first reports under the new rules will have to be submitted by companies from 1 January 2025 for the financial year beginning 1 January 2024 and will apply to companies that already have reporting obligations under the current NFRD – Directive 2014/95/EU, i.e., all listed companies and large companies with more than 500 employees. The second phase will apply from 2026 for the financial year 2025 and will extend the reporting obligations to large companies that meet at least two of three qualifying criteria (i.e., more than 250 employees, turnover of at least EUR 40 million, or assets of at least EUR 20 million). The CSRD sets out further phases for subsequent years. This phased approach allows Member States to transpose the obligations gradually (e.g., the Czech Republic is currently following this approach).

While the process of transposing the CSRD into national law has begun in all the countries discussed in this newsletter, it is difficult to predict when it will be completed in the various jurisdictions. It is likely that, at least in some jurisdictions, the process will be completed in the second half of 2024. At the time of writing, the Czech Republic, Hungary, Romania and Slovakia have proposed draft laws implementing the CSRD, while Bulgaria and Croatia have set up working groups to prepare draft legal acts.

In any event, even in jurisdictions where transposition may be delayed, entities should be aware that they may be required to provide reportable information to companies in their supply chain from other Member States. In addition, as the Directive is phased in, companies that are not covered by the first or second stage, should also be prepared for certain sustainability disclosures required by larger companies in the supply chain.

State of play

Bulgaria

The formal process of transposing the CSRD into national law in Bulgaria was initiated by the Ministry of Finance in October 2023 with the formation of an inter-institutional working group tasked with preparing a draft act for the implementation. While the discussion in the working group is still at an early stage, the proposal will most likely be available for public consultation in late 2023 / early in 2024.

The draft proposal is not expected to deviate significantly from the provisions of the Directive. The main changes it is likely to introduce are amendments to the Accounting Act, as well as amendments to the Public Offering of Securities Act and the Independent Audit Act. Among other things, the Accounting Act will need to be revised to specify that the required non-financial information must be presented in accordance with the European Sustainability Reporting Standards and that this information is a separate part of the company's annual report and thus subject to verification by auditors.

Croatia

No official CSRD implementation strategy has yet been published. However, the Ministry of Finance is currently holding working group meetings in order to formulate effective guidelines for the implementation of the CSRD.

It is also expected that the Accounting Act will be amended with regard to threshold criteria and specific disclosure information for sustainability reports. It is possible that the provisions of the Companies Act, the Audit Act and the Corporate Governance Code of the Zagreb Stock Exchange will undergo certain changes.

It is most likely that the CSRD will be adopted in the second half of 2024, though it is not clear at this stage whether it will be adopted in one or two implementation phases. According to available information, proposed amendments are expected to be available for public consultation in February 2024.

Czech Republic

The CSRD and its sustainable reporting obligation are reflected in a number of pieces of legislation in the Czech Republic. Primarily, the provisions are contained in the Accounting Act (Act No. 563/1991 Coll.), but relevant amendments will also have to be made to the Act on Auditors (Act. No. 93/2009 Coll.) and the Act on Capital Markets Undertakings (Act No. 256/2004 Coll.).

The transposition process in the Czech Republic will take place in two phases. The first of these is already underway, in the context of the bill currently under consideration on the consolidation of public budgets (the Consolidation Package, under Chamber of Deputies print No. 488), where transposition measures have been incorporated somewhat unsystematically in the form of amendments during the legislative process in the Chamber of Deputies. These amend the Act on Capital Market Undertakings and the Accounting Act by introducing a provision on sustainability reporting, to the extent that it corresponds to the first phase of reporting obligations under the CSRD. Furthermore, the Act on Auditors will be amended to introduce the process of the verification of sustainability reports.

The consolidation package was approved by both chambers of parliament, signed by the president and published in the Collection of Laws with effect as of 1 January 2024.

The first phase described above is being carried out as a minimum level of transposition, thus the proposed amendment does not go beyond the scope required by the CSRD. It affects, for the time being, only the scope of regulation of the first group of companies under the CSRD. The implementation of the CSRD's second phase, which will take effect in 2026, is expected to follow in the context of the forthcoming adoption of a new Accounting Act.

The new Accounting Act should transpose the remaining scope of the CSRD, but the proposal is still only at the intergovernmental comment procedure stage, and there has been no official progress on the draft to date. It should be noted that the submitted draft of the Accounting Act does not yet include the reporting requirements under the CSRD, therefore the Ministry of Finance may update the draft and resubmit it. Alternatively, the Ministry may submit the current draft of the Accounting Act to the government and amend it in the Chamber of Deputies. Given the above, the exact scope and timing of the final Accounting Act cannot be predicted; still the adoption of the new Act is expected in the second half of 2024 at the earliest.

Hungary

A draft bill for the transposition of the CSRD into domestic law was submitted to parliament on 14 November 2023. Following a detailed two-week debate, the bill is currently before the legislative committee. As there have been multiple proposals on the content of the draft, the current version might be further amended before going to the plenary for a final vote, likely in December 2023. The planned entry into force of the Act is 1 January 2024.

The proposed bill applies to large enterprises established in Hungary and enterprises of public interest, ESG certifiers, ESG consultants, institutions that train ESG consultants, and companies distributing and manufacturing sustainability software. Any organisation not covered by the above list that voluntarily or contractually undertakes to provide ESG data under the bill, should also follow its provisions.

According to the bill, undertakings under the scope of the bill would have to:

• establish a due-diligence process for sustainability purposes and an internal responsibility strategy and system;
• carry out regular risk analyses to comply with ESG reporting obligations;
• produce an annual ESG report;
• prepare a corporate social responsibility strategy and take preventive and corrective measures;
• have a declaration by indirect suppliers of the risks involved;
• establish a complaints-handling system.

Failure to comply with the reporting obligation would result in a minimum fine of HUF 1 million or a maximum fine of 10% of the undertaking's turnover in the previous full year as reported in the last annual financial statement.

The responsibilities for managing sustainability obligations are divided between the Ministry for Economic Development and the Supervisory Authority for Regulatory Affairs Hungary ("SZTFH").

The Ministry will be responsible for the technical, management, and coordination functions related to ESG sustainability obligations, as well as for overseeing support programmes to raise awareness and preparedness in companies. Through the IFKA Public Benefit Nonprofit Ltd., the Ministry is also tasked to prepare SMEs for their ESG sustainability reporting, including via support programmes, training of ESG consultants, and to maintain a register of ESG consultant training institutions. It will also need to establish an ESG Accreditation Committee that will be responsible for the accreditation of ESG consultant institutions.

As a supervisory body, the SZTFH will monitor companies' compliance with ESG due-diligence obligations and the transparency of the processes. It is envisaged that the SZTFH will maintain a register of companies subject to ESG reporting, ESG certifiers, companies distributing and producing sustainability software, and ESG insurers. It will also have accreditation tasks, responsibility over sanctions, and a role as an operator of a Hungarian online ESG management platform. The Chair of the SZTFH is required to establish a National ESG Council, the main role of which will be to help determine the minimum requirements for ESG reporting.

The detailed rules, such the reporting requirements, should be laid down in a Government Decree and other ministerial decrees.

Romania

In mid-November 2023, the Romanian Ministry of Finance published for public consultation a draft order aimed at transposing the provisions of Art. 1 of the CSRD by amending and supplementing the current accounting regulations in Romania (the Accounting Regulations on Individual Annual Financial Statements and Consolidated Annual Financial Statements and the Accounting Regulations in accordance with IFRS). The draft order sets out the main reporting rules for all entities concerned, irrespective of the phased application of sustainability reporting obligations.

Overall, the draft does not appear to deviate from the provisions of the CSDR. It seeks to regulate the reporting rules for the entities concerned in a segmented manner according to the subject matter of the accounting regulations.

The published draft also seeks to introduce provisions on issues such as: the content of sustainability reporting and guidance on how to report; the exemptions from sustainability reporting; the mandatory use of the single electronic reporting format (provided for in Commission Delegated Regulation (EU) 2019/915); reporting by third country entities; or responsibility for sustainability reporting.

Although the public consultation period has ended, no further update has been published as to the timeframe for the adoption of the order or on comments from relevant stakeholders.

Slovakia

The draft law implementing the CSRD in Slovakia was submitted for public consultation in October 2023. The draft proposes amendments to a number of legal acts, namely the Accounting Act, the Commercial Code, the Stock Exchange Act, the Commercial Register Act and the Statutory Audit Act. The most significant changes concern the Accounting Act and the Statutory Audit Act.

Twenty-two substantive comments were made during the public consultation to amend the draft. The government started their revision on 4 November, after which the draft act will go to parliament for debate.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.