Impacts, challenges and opportunities of CSRD for German SMEs

Climate neutrality by 2050: The EU's goals and the Green Deal

With the Green Deal, the European Union aims to become climate-neutral by 2050. This ambitious plan aims to sustainably transform the European economy while remaining competitive. However, the ecological transformation requires significant investments, with particular emphasis on mobilizing private financial flows.

Importance of sustainability information for investments

Detailed information about the sustainability of companies is essential to secure the necessary investments from stakeholders. The demand for such information is constantly increasing as investors and other stakeholders place increasing value on sustainable business.

Introduction of the Corporate Sustainability Reporting Directive (CSRD)

Launched in 2022 Corporate Sustainability Reporting Directive (CSRD) represents a significant reform of sustainability reporting. It significantly expands the number of companies subject to reporting requirements and standardizes reporting. Medium-sized companies in particular are now required to collect and publish comprehensive sustainability information.

These measures are crucial to create transparency and lay the necessary basis for sustainable investments. With CSRD, the European Union is taking an important step towards a climate-neutral and sustainable economy.

Scope of application

Under the previously applicable Non-Financial Reporting Directive (NFRD), significantly fewer and mainly larger companies were required to report. The introduction of the Corporate Sustainability Reporting Directive (CSRD) has significantly expanded the scope of application and will continue to expand it.

Affected are:

From 2026: Large companies (which exceed 2 out of 3 of the characteristics)

→ Balance sheet total: 25 million euros
‍→ Net sales: 50 million euros
‍→ Staff: 250

From 2027: Capital market-oriented SMEs (which exceed 2 out of 3 characteristics - excluding small enterprises)

→ Balance sheet total: 450,000 euros
‍→ Net sales: 900,000 euros
‍→ Staff: 10

Impacts, challenges and opportunities of CSRD in SMEs

From reporting year 2026, many medium-sized companies will be subject to reporting requirements under the Corporate Sustainability Reporting Directive (CSRD) for the first time.

Early impact and increasing need for information

The relevance of CSRD for medium-sized companies is particularly reflected in the early impact of its stakeholders, including suppliers and financial partners, who may already fall under the CSRD themselves and therefore demand increased and seamless reporting requirements from their business partners along the entire value chain. These requirements lead to increased pressure on medium-sized companies to implement sustainable reporting at an early stage.

Compliance with the new guidelines is particularly relevant for these companies, as their suppliers or financial partners are subject to CSRD requirements and therefore require detailed sustainability information from their business partners. This makes transparent reporting along the value chain indispensable. Medium-sized companies must therefore report earlier in order to meet the requirements of their stakeholders and not be replaced by business partners who comply with reporting requirements.

challenges

Complexity of sustainability reporting

• Collection of a wide range of new information: Companies must collect a comprehensive amount of data that goes beyond their previous reporting requirements
• The necessary structures and processes do not yet exist internally: Many companies do not yet have the necessary structures, experience and routines for effective sustainability reporting
• High effort and excessive costs: The associated bureaucratic effort can be considerable and many companies lack the resources to do so. According to one VDMA study Bureaucracy costs are 1 to 3 percent of turnover.

Information needs of business partners

• Reportable customers, suppliers and financial partners: Companies are facing increasing demands from customers, suppliers and financial partners who are themselves reportable and require detailed sustainability information
• Increasing indirect concern: Even medium-sized companies, which initially do not fall directly under the reporting obligation, are affected by the information needs of their business partners

Competitive effects of increasing transparency

• Bargaining power of stakeholders vis-à-vis their suppliers: The increased transparency through comprehensive reporting increases the negotiating power of stakeholders vis-à-vis their suppliers when they are unable to provide the necessary information.
• Complexity of sustainability reporting: the list published by EFRAG (European Financial Reporting Advisory Group) alone amounts to 1178 data points, but it is not grouped according to the topics of the ESRS materiality analysis, which is why an additional categorization of reporting requirements is necessary

possibilities

Your own use of information

• Identify savings potential and innovations: Through detailed data collection, companies can discover savings potential and develop innovative solutions
• Identify ESG risks internally: Companies can identify environmental, social and governance risks at an early stage and address them in a targeted manner
• Preventing liability: Comprehensive reporting helps to minimize potential liability risks
• Long-term development of the business model: Sustainability reports support the long-term adjustment and development of the business model towards greater sustainability

Using reports as a communication tool

• Use sustainability reports as a strategic communication tool & marketing tool: Reports can be used specifically as a means of communicating sustainability efforts in order to strengthen the corporate image
• Increasing attractiveness as an employer: Transparency on sustainability issues makes the company more attractive to potential employees
• Stronger stakeholder engagement: Transparent reporting promotes stakeholder trust and loyalty and fulfills their own efforts for sustainability-related reporting.
• Allows access to promotional loans: Good sustainability reporting can facilitate access to government funding and loans

Structured coverage of the information needs of various stakeholders

• Reduces information asymmetry between buyers and sellers: Reports reduce information gaps regarding the sustainability of the business model
• Meeting regulatory information needs and relevance for reducing bureaucracy: Sustainability reports meet regulatory requirements and contribute to reducing bureaucratic effort

Implementation of CSRD into national law: draft speaker and responses from business associations

Demands of trade associations

In particular, there are demands for an open market for the upcoming mandatory review of sustainability reports. These demands are supported by:

• TÜV Association e.V.: As a representative of audit organizations, the TÜV Association calls for an open market to ensure high audit standards and quality.
• General Association of the German Textile and Fashion Industry‍
• Chemical Industry Association (VCI)
  
• Association of German Mechanical and Plant Engineering (VDMA)‍
• Central Association of Electrical and Electronics Industries
• Steel and Metal Processing Association (WSM)
• Metals Industry Association

Concerns and criticism from business associations

The associations are particularly concerned about:

• Increased costs for SMEs: The additional financial burdens due to the new reporting requirements could be particularly problematic for medium-sized companies.
• Risk of poor quality audit results: If there is a lack of qualified personnel or technical know-how, the quality of the audits could be affected, which could result in inaccurate or unreliable reports.

How can Tanso help

Tanso helps medium-sized companies to meet CSRD requirements and achieve their sustainability goals through audit-oriented and integrated ESRS reporting in accordance with the highest standards. With our focus on data-intensive categories, such as the corporate carbon footprint, Tanso not only enables standard-compliant reporting, but also active management and optimization of ESG performance.