In the past, banks have predominantly relied on financial metrics to guide their funding strategies. However, with the prominence and importance of ESG (Environmental, Social and Governance) principles, a paradigm shift is underway. Sustainability metrics are gaining prominence in the decision-making process for financing companies or projects.
In Hungary, sustainability is in its early stages and has not yet become a central concern for a considerable portion of the population. For most people, financial factors and the prospect of savings remain the primary driving forces behind their actions in this context. When it comes to contributing to climate protection, the most substantial efforts from the populace are directed toward renovating their real estate. However, the primary motivation behind these renovations isn't rooted in environmental concerns but rather stems from the desire to reduce energy expenses.
The situation is somewhat different for companies. In general, the corporate sector is just embarking on its path toward greater awareness of ESG principles and sustainability practices. This holds true for both smaller enterprises and larger corporations. While there's a recognized imperative to engage with issues related to climate neutrality and sustainability, the actual translation of these intentions into tangible actions remains quite limited. Recognizing that companies that do not address this issue will be at a strong competitive disadvantage when competing in the same market as Western European companies, there is already a sense of activity among larger companies.
Furthermore, in light of the Corporate Sustainability Reporting Directive (CSRD) adopted earlier this year, there are reporting obligations that companies must adhere to. These obligations, depending on the size of the company, will require reporting to commence either in 2025, 2026 or 2027. As a result of these regulatory changes, it is expected that large multinational companies will progressively factor sustainability metrics into their procurement decisions in the upcoming years.
The shifting landscape towards sustainability in banking and corporate practices represents a promising transformation. Companies worldwide are awakening to the call of ESG principles, navigating through a nuanced blend of incentives, steering funds away from environmental harm and propelling eco-friendly sectors forward. ESG programs help businesses attract investors, build customer loyalty, improve financial performance, make operations sustainable and gain a competitive edge. This journey is propelled by financial institutions reshaping their strategies, businesses recognizing the competitive edge of eco-consciousness, and individuals and companies planting the seeds of change.
By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm