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CSRD Reporting: Why Small and Medium Enterprises (SMEs) Are Falling Behind

Picture of Emerald Power By  Emerald Power  ·  3 minute read

As businesses across Europe embrace sustainability, the Corporate Sustainability Reporting Directive (CSRD) is a critical step forward in ensuring companies disclose their environmental, social, and governance (ESG) performance. Introduced by the European Union, the CSRD sets a higher standard for non-financial reporting, aiming to improve transparency and accountability in corporate sustainability.

While large corporations are better equipped to meet these new requirements, many Small and Medium Enterprises (SMEs) are struggling to keep up. The unique challenges SMEs face make it difficult for them to comply with the complex demands of CSRD. This blog explores why CSRD reporting isn’t as advanced for SMEs and how they can navigate these hurdles.

1. Lack of Resources and Expertise

One of the main reasons SMEs lag in CSRD compliance is the lack of internal resources. Large corporations typically have dedicated departments to manage ESG compliance and reporting. In contrast, SMEs often lack the in-house expertise needed to interpret and implement these new sustainability standards.

Hiring or training staff with the necessary skills to handle CSRD reporting can be a significant financial strain for smaller businesses. As a result, many SMEs rely on generalist employees who may not fully understand the intricacies of sustainability metrics or carbon accounting, making it more difficult for them to meet CSRD standards. This is where affordable tools like Emerald Power’s carbon reporting software can help SMEs streamline their processes without overwhelming their resources.

2. Complexity of Reporting Standards

The CSRD introduces far more complex reporting standards than the previous Non-Financial Reporting Directive (NFRD), incorporating global frameworks such as the Task Force on Climate-Related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI). While this raises the bar for sustainability transparency, it also increases the difficulty of compliance, particularly for SMEs.

For smaller businesses that may not be familiar with such frameworks, navigating these standards can feel daunting. The sheer volume of data required, along with the technical nature of the reports, often leads SMEs to fall behind in compliance. Simplifying these frameworks for SMEs, or offering more tailored guidance, could significantly ease the burden and allow them to engage more fully with CSRD.

3. Cost Barriers to Digital Solutions

As sustainability reporting moves towards digitisation, larger companies are increasingly relying on sophisticated carbon accounting and ESG reporting software to meet their CSRD obligations. Tools like Emerald Power enable businesses to track their carbon emissions, energy consumption, and sustainability metrics efficiently. However, many SMEs find the cost of such digital solutions prohibitive.

For smaller businesses, the investment in advanced software, along with the training required to use it effectively, represents a substantial financial hurdle. Without affordable tools designed specifically for their needs, many SMEs resort to manual processes, which are time-consuming and prone to errors. Affordable, SME-focused digital tools are critical to overcoming these barriers.

4. Limited Awareness and Engagement

Another issue holding SMEs back is limited awareness of CSRD and its requirements. Larger corporations, with established sustainability teams, are often more engaged in ESG initiatives. Many SMEs, however, are still in the early stages of understanding the importance of sustainability and non-financial reporting.

This lack of awareness stems from insufficient communication and education about the directive’s implications for smaller businesses. Without proactive outreach from regulatory bodies or industry associations, many SMEs may be slow to adapt, leaving them at risk of falling behind. Initiatives that offer clear, accessible guidance for SMEs, such as online workshops or targeted outreach, could greatly improve their understanding and compliance.

5. Fear of Regulatory Overload

Many SMEs already face significant regulatory burdens, and the introduction of CSRD adds another layer of complexity. The fear of regulatory overload is a major concern, with many smaller businesses worried that these additional requirements will stretch their already limited resources even further.

For SMEs operating in competitive sectors, time and resources are often focused on growth and survival. In these cases, complying with CSRD can feel like an unwelcome distraction. While larger corporations may be able to integrate CSRD requirements into their long-term strategies, SMEs might struggle to do so without additional support or simplified reporting frameworks.

How SMEs Can Overcome These Challenges

Although CSRD compliance presents unique challenges for SMEs, there are ways to bridge the gap:

  • Affordable Sustainability Software: Solutions like Emerald Power, which offer cost-effective, streamlined carbon reporting software, are essential for SMEs looking to meet CSRD standards without breaking the bank.

  • Training and Support: Governments and industry associations should provide clear guidance, grants, and training to help SMEs understand and implement CSRD reporting effectively. More educational resources would empower SMEs to engage with the new regulations proactively.

  • Tailored Reporting Standards: Adjusting CSRD requirements to account for the realities of SMEs’ resources and capacity could ensure that smaller businesses are not disproportionately affected.

  • Collaboration: SMEs can collaborate with consultants or form industry partnerships to share knowledge and resources, easing the burden of compliance.

Conclusion: Bridging the Gap

While CSRD reporting may not be as advanced for SMEs as it is for larger corporations, the gap is not insurmountable. With the right combination of affordable digital solutions, training, and simplified reporting standards, SMEs can meet CSRD requirements without being overwhelmed by complexity or cost.

By taking steps to improve awareness, offer support, and develop tools tailored to smaller businesses, regulators and technology providers can help SMEs align with CSRD goals. In doing so, SMEs will not only achieve compliance but also benefit from the long-term advantages of sustainability, including enhanced reputation, greater resilience, and new opportunities for growth in an increasingly eco-conscious market.