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Navigating Regulatory Compliance under CSRD: A Guide for MSEs

A guide for midsized enterprises on why CSRD is important and how to best make use of SaaS solutions.
Linda Grönlund
6 min
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There is no escaping the need for businesses to comply with regulatory requirements. Still, especially for mid-sized enterprises, compliance can become a real challenge: The lack of expertise, resources, and time exacerbates the situation. Among the latest regulations, the Corporate Sustainability Reporting Directive (CSRD) stands out as a fundamental regulation, setting out the requirements for non-financial (or sustainability-related) information and aiming to enhance consistency, transparency and quality of sustainability reporting.

The European Sustainability Reporting Standards (ESRS) were developed by the European Financial Reporting Advisory Group (EFRAG) in accordance with the requirements of the CSRD and represent a binding set of reporting rules for Environmental, Social and Governance topics, which companies should apply in their sustainability reports starting in 2025. In this article, we delve into the significance of regulatory compliance with CSRD for mid-sized enterprises and explore how Software as a Service (SaaS) tools can streamline the ESRS reporting process when used right, as well as why CSRD can shape a company’s future trajectory.  

Understanding regulatory compliance in CSRD

The Corporate Sustainability Reporting Directive (CSRD) is a central part of the EU Sustainable Finance Package, encompassing measures to enhance the quality of reporting on sustainability matters within a management report.

It mandates businesses that fulfill at least two of the following criteria to disclose non-financial information, covering areas such as environmental impact, social responsibility, and governance practices:  

- Balance sheet total > 25 million euros  
- Net sales > 50 million euros  
- Number of employees > 250  

Therefore, The CSRD criteria affects most mid-size enterprises (MSEs), since those organisations lie between €50 million and €1 billion in annual revenues and/or 250 to 1000 employees.1 The regulation also affects numerous small-sized companies (SMEs). The European Union defines these as:  

- Balance sheet total < 5 million euros  
- Net sales < 10 million euros  
- Number of employees < 2502.

Looking at the above definitions, it becomes clear that thousands of European mid-sized companies will fall under the CSRD compliance criteria. Even listed small-sized enterprises are affected by the regulations and must comply with a simplified version of the ESRS:  

a) because they are preparing for growth in the coming years and need to be prepared to report in due course or,  
b) their larger corporate customer is requesting information related to CSRD, so they need to familiarise themselves with the regulation.  

Irrespective of whether a company still considers itself an SME or is already an established mid-sized business, the CSRD regulation and ESRS reporting will be important topics in the future.

For mid-sized companies, compliance with CSRD presents both challenges and opportunities. While navigating complex regulatory requirements may seem daunting, adherence to CSRD fosters transparency, builds trust with stakeholders, and enhances competitiveness in the market. However, limited resources and expertise often hinder these companies from meeting these compliance obligations.

Understanding CSRD: A catalyst for change

The Corporate Sustainability Reporting Directive (CSRD) is a pivotal regulatory initiative introduced by the European Union to strengthen corporate transparency and sustainability reporting. It replaced the Non-Financial Reporting Directive (NFRD) and expanded the scope of reporting requirements for companies. CSRD mandates the disclosure of non-financial information, such as environmental, social, and governance (ESG) factors, to foster accountability, facilitate informed decision-making, and drive sustainable business practices.

Why CSRD Matters for Midsized Companies

While large corporations often dominate sustainability reporting discussions, mid-sized companies are crucial in driving economic growth and innovation. Here's why CSRD is particularly important for them:

Enhanced transparency and credibility: CSRD compliance compels mid-sized companies to disclose non-financial information, providing stakeholders with a comprehensive view of their sustainability performance. By embracing transparency, MSEs can enhance credibility, build trust with customers, investors, and other stakeholders, and differentiate themselves in the market.

Access to capital and markets: Investors and financiers increasingly integrate sustainability criteria into their decision-making processes. Compliance with CSRD enables MSEs to align with these criteria, enhancing access to capital, attracting investment, and expanding market opportunities. It can also facilitate entry into sustainability-focused markets and supply chains, opening doors to new partnerships and collaborations.

Risk mitigation and resilience: By assessing and disclosing ESG risks and opportunities, MSEs can proactively mitigate risks, adapt to changing market dynamics, and enhance resilience. CSRD compliance prompts SMEs to identify potential environmental, social, and governance risks within their operations and supply chains, enabling them to implement measures to address these risks effectively.

Stakeholder engagement and reputation management: Engaging with stakeholders is essential for MSEs to understand their expectations, priorities, and concerns regarding sustainability. CSRD compliance fosters meaningful dialogue with stakeholders to respond to their stakeholders' needs, demonstrate commitment to sustainability, and safeguard reputation.

Driving innovation and competitive advantage: Embracing sustainability reporting can catalyse innovation within MSEs, leading to the development of eco-friendly products, services, and processes. CSRD sets out specific requirements for existing policies, actions, and targets related to sustainability topics. MSEs can be encouraged to advance those and make them comply more precisely. It also enables SMEs to adopt sustainable practices, driving operational efficiencies, reducing costs, and gaining a competitive edge in the marketplace.

The role (and benefits!) of SaaS solutions in facilitating compliance

SaaS solutions offer a lifeline for small to medium-sized companies grappling with regulatory compliance while being much more cost-effective. On average, CSRD reporting can cost up to €150,000 and last 3-6 months. With a consulting hourly rate ranging from €800-1500 per hour, this can quickly escalate. Software dramatically increases productivity while supporting internal experts, allowing them to focus on strategic thinking and execution.

Cloud-based solutions are much more cost-effective and user-friendly than traditional compliance methods, empowering these companies to streamline their reporting processes and ensure adherence to CSRD. This is especially important since, very often, the responsibility of CSRD compliance and implementation in an MSE lies with a single person or a small team with limited resources.  

Here's how SaaS solutions benefit these companies in achieving regulatory compliance:

Automated data collection: SaaS solutions enable MSEs to automate the collection of relevant data across various departments, eliminating manual errors and ensuring data accuracy. By integrating with existing systems, these solutions simplify gathering non-financial information required for ESRS reporting.

Standardised reporting templates: SaaS platforms offer standardized reporting templates tailored to comply with ESRS data standards. MSEs can leverage these templates to structure their sustainability reports efficiently, saving time and resources.

Real-time monitoring and analysis: With SaaS solutions, MSEs can monitor their sustainability performance in real-time and conduct a comprehensive study to identify areas for improvement. This proactive approach allows organizations to address potential compliance issues promptly and make data-driven decisions to enhance sustainability practices.

Scalability and flexibility: SaaS solutions are highly scalable and ideal for SMEs with fluctuating reporting needs. Whether scaling operations or expanding into new markets, these solutions can adapt to evolving compliance requirements, ensuring continued adherence to CSRD regulations.

Communication process support:
Reaching out to stakeholders up and down the value chain is a monumental undertaking, and having clear communication channels and task management timelines helps the process along.

Compliance management dashboards: Many SaaS platforms offer intuitive dashboards that provide a centralised view of compliance activities, including upcoming deadlines, submission statuses, and compliance metrics. This transparency enhances accountability and enables MSEs to stay on track with their regulatory obligations.

Starting with CSRD compliance requires a structured approach, clear objectives, and investment in the right solution and resources. By understanding ESRS reporting requirements, assessing current emerging practices, setting clear objectives, and engaging stakeholders, SMEs can lay the foundation for sustainable growth and long-term success.

Conclusion: MSEs need a data-driven and automated approach to reap the benefits of the CSRD

Compliance with CSRD is essential for MSEs to thrive sustainably and transparently. While navigating regulatory requirements may seem daunting, SaaS solutions offer a viable solution for MSEs to streamline their compliance efforts effectively. Even though compliance with the CSRD is challenging, we at ImpactNexus see it as a unique opportunity to embrace sustainability, transparency and responsible business practices. Companies can unlock numerous benefits by complying with the CSRD’s requirements, including enhanced transparency, access to capital and markets, risk mitigation, stakeholder engagement, and competitive advantage.

As MSEs and SMEs navigate the complexities of CSRD compliance, it is essential to view it not just as a regulatory obligation but as a strategic imperative for long-term success. By integrating sustainability into their core business strategies, these companies can thrive in the evolving business landscape and contribute to a more sustainable and resilient future for future generations.

When implemented correctly, leveraging automated data collection, real-time monitoring, and compliance management dashboards, companies can meet CSRD obligations, drive sustainable growth, and foster stakeholder trust. Hence, embracing SaaS solutions is not just about compliance; it's about empowering one’s business operations to unlock their full potential and make a positive impact.  

Interested in learning more about how ImpactNexus can turn the CSRD into a competitive advantage for your business? Book a demo or a discovery call!

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