CSRD hits Mittelstand

The Corporate Sustainability Reporting Directive (CSRD), which was adopted by the European Commission in November 2022 and had to be transposed into national law by the EU member states by January 2024, has long been one of the key challenges facing many companies. The new directive expands the existing regulations for non-financial reporting. As a result, the sustainability report will become an integral part of the management report for the companies concerned. While large listed companies are already familiar with the topic of sustainability reporting and "only" have to implement one more transparency requirement, medium-sized companies are sometimes caught off guard.

From now on, companies must provide information on the impact of their activities on people and the environment and present the effects of various sustainability categories on the company (double materiality). The sustainability report must be drawn up in accordance with strictly defined standards. The first set of "European Sustainability Reporting Standards" (ESRS) is already available and is to be expanded by the "European Financial Reporting Advisory Group" (EFRAG) with additional standards. The company is given precise guidelines on how data and information should be presented.

In order to determine which information is relevant for disclosure, the principle of double materiality must be applied. Certain test criteria are used to determine which of the defined content points the company must comment on due to their relevance to the company.

How are Mittelstand companies affected by the CSRD?

Mittelstand companies include small and medium-sized enterprises, which are usually independent, owner-managed companies. They have a limited number of employees and are usually active in a specific region, primarily in the areas of trade, crafts, services and production. They play an important role in the regional economy and are closely linked to their surroundings. In Germany, companies are considered Mittelstand companies if they have fewer than 250 employees and an annual turnover of no more than 50 million euros.

Small and medium-sized Mittelstand companies may be affected by the CSRD in two ways in the near future. Either they will be subject to the obligation for capital market-oriented Mittelstand companies to include sustainability reporting in their annual financial statements from the start of the 2026 financial year or - and this is much more frequently the case - they will not be legally affected, but will be affected in practice, as business customers subject to reporting requirements will pass on their transparency requirements.

Three key challenges for Mittelstand companies 

1. Materiality analysis: The first step is a comprehensive analysis of the company's own business model in terms of impact factors and a comparison with peer and industry standards. The involvement of stakeholders (customers, competitors, suppliers, financing partners and the public) requires cross-departmental cooperation and must be closely coordinated with the company management. In addition, information on the various sustainability categories must be obtained and interpreted.
2. Granular reporting processes: Business partners are increasingly demanding accurate sustainability information, e.g. the carbon footprint of a delivered product. Granular and stable reporting processes must therefore be established, regardless of the company's own involvement. To this end, IT, Finance and Purchasing must be involved in the project as a minimum. Key questions need to be clarified at the beginning: Which validation processes will be used? How can figures be provided on the reporting date and on a daily basis?
3. Sustainable corporate governance: In addition, the integration of management control processes can present companies with a challenge. One example of this is the selection of suppliers and service providers according to ESG criteria. The selection of sustainable and transparent suppliers is important as they represent a source of data. Trustworthy data serves as the basis for a company's own sustainability reports or, in many cases, is also passed on to third parties who use it as a basis for reporting.
   
   

Our three tips for implementation 

1. When implementing the "sustainability reporting" project, it is important to allow sufficient time to carry out all steps carefully. Set a realistic time frame and plan buffers to be able to react appropriately to any delays or unforeseen problems.
2. If you are unsure or need additional expertise, consider enlisting the help of specialist consultancies. They can use their expertise and experience to help you successfully implement the project and overcome potential obstacles.
3. Use suitable software to make the implementation of your project easier and more efficient. The selection and integration of carbon intensity monitoring and supply chain compliance software is beneficial for successful data management and real-time monitoring.

BECEPTUM has many years of experience in dealing with complex requirements and regulatory specifications. BECEPTUM offers customized solutions to effectively meet the requirements of the CSRD and thus meet the challenges of the new reporting obligations.

You can access our CSRD white paper and CSRD readiness check via our Insights, which will enable you to find out more about the directive and check which reporting obligations will affect you and your company in the future.