ESG Integration and CSRD Reporting: A Guide for Medium-Sized Companies in 2025

Sustainability is not just an obligation, but an opportunity for SMEs. Companies that integrate ESG criteria (Environmental, Social, Governance) into their strategy benefit from better financing options, reduced costs, and a stronger market position. Starting in 2025, many medium-sized companies will be affected by the CSRD reporting requirement – here are the key facts and steps:

• Obligations from 2025: Companies with more than 250 employees or certain revenue and balance sheet thresholds must submit sustainability reports. According to the European Commission, this will expand the scope of reporting from about 500 to over 14,000 companies in Germany alone, significantly increasing transparency in the market. Source
• Benefits of ESG: Savings on energy, access to subsidies, improved employee retention, and new business opportunities. For example, research by McKinsey shows that companies with strong ESG performance can reduce costs by up to 60% through resource efficiency and improved risk management. Source
• Success stories: Examples like switching to LED lighting or installing solar panels show how companies can cut costs and operate sustainably. These measures not only reduce environmental impact but can also yield a return on investment within two to five years, according to the International Energy Agency. Source
• First steps: Analyze ESG status, set clear goals, involve employees, and use digital tools. Early adoption of digital solutions can streamline compliance and reporting, giving SMEs a head start as regulations tighten.

Those who act now can not only prepare for upcoming regulations but also actively shape the transformation – and become a role model for the industry.

Why ESG is Important for Medium-Sized Companies

Compliance with ESG Regulations

ESG regulations are playing an increasingly important role for German SMEs. With the CSRD, the reporting obligation will expand from 500 companies to around 14,600. This regulation affects companies of various sizes, with a phased introduction. From 2025, medium-sized businesses in particular will be in focus. In addition to legal requirements, expectations from market participants and investors are also rising. According to a 2023 PwC survey, 83% of investors stated they would withdraw from investments if companies failed to adequately address ESG risks. Source

Market and Investor Requirements

"Sustainability risks are not side issues that companies can address on the side, but the central risks of our time."

Customers, banks, and business partners are increasingly placing demands on medium-sized companies. They expect sustainable products, consideration of ESG criteria, and transparent sustainability information. A recent KfW study found that 60% of German SMEs now face sustainability requirements from their business partners, highlighting the growing market pressure to act. Source

Cost Reduction and Risk Management

Meeting ESG requirements and aligning with market needs also offer opportunities to cut costs and reduce risks. Well-organized ESG risk management lays the foundation for sustainable success. For example, companies that proactively manage ESG risks are less likely to face regulatory fines or reputational damage, which can have a direct impact on profitability.

"A well-structured ESG risk management makes the irreversible path to greater sustainability easier. It creates new value for all stakeholders, leads to better long-term performance, and increases company value – for investors, for society, and for the world as a whole."

Targeted ESG management brings advantages such as:

• Improved access to financing – banks increasingly link loan conditions to ESG performance, as seen in the rise of green loans and sustainability-linked credit lines. Source
• Easier recruitment of skilled workers – a 2023 Deloitte survey found that 49% of Gen Z and Millennials would turn down employers not aligned with their values, including sustainability. Source
• Protection of corporate reputation
• Unlocking new business opportunities

The EU is also developing a simplified standard for small and medium-sized enterprises (VSME). A pilot project by DIHK, DRSC, and DHBW has shown that this standard enables simple and efficient documentation and improvement of sustainability performance even for smaller businesses.

From 2028, the ESG reporting obligation will be extended to capital market-oriented SMEs. At the same time, the EU is working on digital standards for machine-readable ESG reporting. Those who implement automated solutions early will be well prepared for these requirements.

CSRD explained

Success Stories from German SMEs

Sustainability is far more than just a trend – successful ESG strategies (Environmental, Social, Governance) show how SMEs can achieve real advantages.

Savings Through Energy Efficiency

The SRH Zentralklinikum Suhl demonstrates how significant savings can be achieved through energy efficiency measures. By replacing 900 fluorescent tubes with modern LED tubes, lighting electricity consumption was halved. This means an annual saving of 150,000 kilowatt hours. According to the German Energy Agency (dena), such retrofits can reduce lighting costs by up to 70%. Source

Another example is N-Tec from Leverkusen, which invested in a powerful solar system with 98 kWp:

These examples show how technological modernization not only relieves the environment but also brings financial benefits. According to the International Renewable Energy Agency (IRENA), SMEs investing in renewables can achieve payback periods of less than five years. Source

Better Financing Through ESG Reports

ESG initiatives also open up new opportunities in financing. The Football and Athletics Association of Westphalia (FLVW) used crowdlending and subsidies to modernize its heating circulation pumps. The result: a reduction in electricity consumption by an impressive 90%. Such financing models are key to implementing further sustainable projects. According to the European Investment Bank, green financing for SMEs grew by 30% in 2023, reflecting the increasing importance of sustainability for access to capital. Source

Sustainability Through Employee Involvement

Companies like Salzgitter Flachstahl GmbH and Krones AG show how important it is to involve employees. Salzgitter was able to reduce energy consumption by 54% through the use of recuperators, while Krones achieved a 50% energy saving through waste recycling and employee involvement.

"I acknowledge my responsibility not just in relation to my staff – but the environment, too." - Uwe Kirmse, Managing Director of N-Tec

These examples make it clear that technological innovation and committed employees can go hand in hand to achieve sustainability goals. This creates both ecological and economic benefits for German SMEs.

Steps to Integrate ESG into Your Company

Determining Your Current ESG Status

The first step towards integrating ESG (Environmental, Social, Governance) is to analyze your current status. With modern software, companies can systematically assess their ESG performance.

Based on this analysis, the next step is to develop an individual ESG plan. The Global Reporting Initiative (GRI) provides free resources and templates to help SMEs get started. Source

Developing Your ESG Plan

A well-structured ESG plan contains clear goals and defines responsibilities. 1. FC Köln shows how important collaboration across all departments is. The club uses software to systematically track sustainability goals and actively involve employees in the entire process – from analysis to reporting.

"Software provides us with a uniquely structured strategy and data tool, delivering enormous time and cost efficiency across departments and the group in the complex field of sustainability management."
– Thomas Keßeler, Head of Sustainability

Tools and Partners for Implementation

Specialized tools and partnerships can play a crucial role in successfully implementing your ESG plan. For example: CR-Kompass offers a free basic version to make it easier to get started with ESG management.

Specialized ESG platforms are especially helpful:

• Digital Solutions
  Tools provide templates, automation, and compliance checks for standards such as GRI, CSRD, and DNK. Platforms like Coolset and Plan A offer automated data collection and reporting tailored to SMEs. Source
• Experts Experts like myself offer comprehensive support in all ESG areas.

Common Problems and Solutions

Understanding Complex Regulations

ESG requirements present challenges for medium-sized companies. The VSME standards (Voluntary Sustainability Standards for SMEs), developed specifically for smaller companies with limited resources, offer a practical alternative to the ESRS requirements.

The Omnibus Regulation relieves about 80% of affected companies. Large companies may not require additional sustainability information from companies with fewer than 500 employees that goes beyond the VSME standards. In addition to simplifying these requirements, ESG measures can also be implemented cost-effectively.

ESG on a Limited Budget

Three key steps for a practical ESG strategy:

• Conduct a materiality analysis: Identify the central sustainability topics. The GRI Standards offer guidance for SMEs to focus on the most relevant issues.
• Create a greenhouse gas balance: Record Scope 1 and Scope 2 emissions. Free tools from the GHG Protocol can help SMEs calculate their emissions efficiently.
• Develop a long-term strategy: Plan and implement improvements step by step.

"Large companies should not be allowed to require additional sustainability information from companies with fewer than 500 employees that goes beyond the VSME standards – unless there are compelling reasons that make supplementary reporting necessary."

Scope 3 emissions – especially along the supply chain – are also coming into greater focus. Companies that record and reduce these early on strengthen their resilience to ESG requests from major customers. According to CDP, 92% of supply chain emissions are typically Scope 3, underlining the importance of early action. Source

Gaining Support Within the Team

Employees play a central role in successful ESG integration. The most important success factors include:

• Training for employees
• Clear and transparent communication
• Active involvement of all stakeholders

Early adoption of the VSME standards can not only meet the requirements of customers and banks but also create a competitive advantage. A good ESG rating is often rewarded with better loan terms.

Conclusion

Key Points

The success stories make it clear: ESG management embedded in corporate strategy can drive sustainable growth. ESG practices are a key growth driver for medium-sized companies. Benjamin Lüders, Partner and Head of Risk Consulting at EY Consulting GmbH, sums it up well:

"A well-structured ESG risk management paves the way for greater sustainability. It creates new value for all stakeholders, leads to better long-term performance, and increases company value – for investors, for society, and for the world as a whole."

Three central pillars form the foundation for successful ESG integration:

These pillars show where companies should focus to successfully implement ESG.

Next Steps

To effectively integrate ESG practices, companies should address the following points:

• Building Competence (Strategic Integration): Develop the necessary know-how internally to implement ESG measures effectively. Free online courses from the SDG Academy or Coursera can help upskill teams.
• Data Management (Risk Management): Establish processes to systematically collect ESG-relevant data. A solid data foundation is crucial for consistent reporting.
• Stakeholder Dialogue (Stakeholder Management): Engage in regular dialogue with all relevant stakeholders to ensure a coordinated ESG approach.

Companies that integrate ESG into their corporate strategy secure competitive advantages and remain future-proof. Those who act now can seize opportunities for sustainable growth.

FAQ

Here you’ll find answers to frequently asked questions, clearly and concisely summarized.

CSRD Rules for Medium-Sized Companies

Medium-sized companies are subject to the CSRD reporting obligation if they meet at least two of the following criteria:

"The EU Commission wants to reduce the number of companies required to report by 80%."

In addition to complying with CSRD requirements, measures in the ESG area (environmental, social, and governance) also offer economic benefits.

Examples of ESG Cost Savings

Efficient processes and digital ESG reporting can enable significant savings:

• Automated reporting: Up to 90% cost savings (e.g., €990 per report). Automated ESG tools such as those offered by Coolset or Plan A can reduce manual effort and lower compliance costs. Source
• Time savings: Concept development in 2-3 hours instead of several months

In addition to financial benefits, precise tools are crucial for achieving sustainability goals.

ESG Measurement Tools

Modern tools for ESG management offer key features:

The Munich Chamber of Commerce (IHK Munich) recommends the following first steps:

1. Assess applicability: Check whether your company falls under the CSRD criteria.
2. Clarify responsibilities: Define who in the company is responsible for ESG matters.
3. Implement systematic data collection: Establish a structured and regular process for capturing relevant data.