Purpose of this Article: To provide a better understanding of the mandatory Corporate Sustainability Reporting Directive (CSRD) for SMEs (+).
Introduction
As an SME (+)owner, you are always looking for opportunities to grow your business while staying prepared for future challenges. With the arrival of the Corporate Sustainability Reporting Directive (CSRD), you face a new challenge that may feel unexpected. You might wonder, “What does this mean for my business?” and “How can I strategically address this without disrupting my daily operations?” YES Corporate Finance offers valuable insights to help you proactively and smartly navigate the CSRD.
What is the Corporate Sustainability Reporting Directive (CSRD)?
CSRD is a European directive that will require companies meeting certain criteria, to provide detailed reports on their environmental and social impact. CSRD is an important step towards making sustainability policies more transparent for companies in Europe. This directive expands on the Non-Financial Reporting Directive (NFRD), which already applied to large European publicly listed companies, banks, and insurers (public interest entities). Unlike the NFRD, the CSRD requires more detailed reporting, including information on a company’s entire value chain. This includes providing insights into CO2 emissions, the origins of raw materials, how they were transported, and the ecological and social impact of the business. This means companies must now report not only on their own activities but also those of their suppliers and customers. You may soon find one of your larger customers knocking on your door asking for information about your sustainability efforts.
Are you prepared for this new directive? How you respond to these developments can make the difference between a long-term collaboration with a valued customer or a missed opportunity.
Implementation Timeline
The CSRD has a broader scope than the NFRD and applies to many more companies. The CSRD has been in effect since January 1, 2024, for companies already subject to the NFRD. The CSRD will be gradually rolled out in the coming years, making the following companies also subject to reporting requirements:
- Large companies (reporting in 2026 on the 2025 financial year)
- Listed SMEs (reporting in 2027 on the 2026 financial year)
- Certain non-EU companies (reporting in 2029 on the 2028 financial year)
The European Commission defines a company as ‘large’ if it meets at least two of the following three criteria:
- More than 250 employees
- Annual turnover exceeding €50 million
- Total assets exceeding €25 million
What Can You Expect as an SME owner?
If your company is not publicly listed, you may think, “This doesn’t apply to me, right?” While non-listed SMEs are not directly required to report, larger partners in your supply chain may request information from you. The demand for information on companies’ sustainability policies will only increase. How will you strategically handle this? Early preparation for these requirements can not only prevent operational challenges but also create opportunities to position yourself as a sustainable partner. It is therefore beneficial to understand what CSRD reporting entails. These reports are prepared according to the European Sustainability Reporting Standards (ESRS), which help companies collect specific sustainability information, such as data on pollution and working conditions.
Advice from YES Corporate Finance
To successfully meet the expectations of larger supply chain partners, SMEs must prepare in advance and, where necessary, seek assistance. YES Corporate Finance offers the following advice to SME entrepreneurs:
Collaborate with Supply Chain Partners
Collaboration within the value chain is crucial, and being proactive is key. Start by mapping your supply chain and ensure you can provide the necessary sustainability information to partners who will be required to report. Companies that act proactively will maintain relationships with larger partners. For example, a packaging production company supplying to a listed food company must demonstrate which raw materials were used and what the carbon footprint is of the supplied materials.
Utilize Voluntary Standards
Simplified sustainability standards for SMEs will be available by the end of 2024. Working with these standards at an early stage can give your company a competitive advantage.
Invest in Data Infrastructure
Collecting reliable data across the entire value chain is essential. SMEs must set up systems to monitor data on emissions and energy consumption, among other things. This helps ensure timely compliance with requests from partners who are subject to the CSRD. Digitalization plays a key role here.
Strengthen Your Sustainability Strategy
The CSRD not only requires data but also a clear sustainability strategy. Assess long-term opportunities and risks and integrate these into your business strategy. This can make your company more attractive to investors, financiers, and customers who highly value ESG principles.
Increase Internal Capacity
The stricter CSRD requirements call for specific knowledge in the field of sustainability and reporting. Invest in training for your management and employees or hire a consultant to collect and interpret sustainability data. YES CF has positive experiences with consultancy firm KplusV, which specializes in strategically implementing sustainability practices within SME (+) companies. They assist SME entrepreneurs in developing a strategic plan that combines sustainability and financial goals. This process starts with a brief and practical analysis of the current situation and identifying opportunities for sustainability improvements. They can then advise and support in setting priorities and measuring progress through KPIs, resulting in a workable roadmap. This not only helps meet CSRD requirements but also offers benefits such as long-term cost savings, enhanced reputation, and attracting young talent. For more information about KplusV, please visit https://www.kplusv.nl/about-kplusv/
CSRD in the Context of a Potential Business Acquisition (Buy or Sell)
Sustainability requirements in line with CSRD guidelines are becoming increasingly important when valuing companies. Failure to meet these requirements can lead to a discount on the price, while compliance can lead to a premium if the deal is thoroughly negotiated.
Given the increased sustainability reporting requirements, it will become more difficult for companies to obtain financing on favorable terms. Lenders are already assessing whether larger companies comply with CSRD requirements, and non-compliance results in less favorable financing terms, such as higher interest rates. YES Corporate Finance Partner Vincent Hafkamp explains, “Now that SMEs will also fall under the CSRD, these companies would be wise to meet the criteria in a timely manner to secure better financing terms. This ensures long-term access to (bank) financing.”
Conclusion
The CSRD brings significant changes for Dutch companies. While not every SME will be subject to reporting obligations, they will still need to invest in systems, knowledge, and collaboration to manage sustainability data effectively.
Looking for more information or support in securing financing or valuation for a future sale or acquisition? The experienced partners at YES Corporate Finance are ready to assist.
Arjan Boonekamp – boonekamp@yescf.nl – +31 6 8127 1573
Vincent Hafkamp – hafkamp@yescf.nl – +31 6 1139 8307
