Navigating ESRS Compliance: Practical Steps for Small and Medium-Sized Enterprises (VSMEs)

Small and medium-sized enterprises (VSMEs) will soon have to implement the new EU Sustainability Standards (ESRS). How can the transition succeed, and what practical steps can help overcome the hurdles?

• Who is affected? Companies with fewer than 250 employees, a balance sheet total under €25 million, and revenue under €50 million are in scope, as defined by the EU’s SME criteria.
• Why ESRS? From 2024, the standards will apply to many companies—including smaller businesses—under the expanded Corporate Sustainability Reporting Directive (CSRD).
• Challenges:
  • Lack of resources: 88% of VSMEs feel unprepared, according to a PwC survey.
  • Complex requirements: Over 1,100 data points must be collected, many of which are new to SMEs.
  • Technical and personnel bottlenecks, with a shortage of sustainability expertise and digital infrastructure.
• Solutions:
  • Phased plan: Step-by-step implementation over 12 months, as recommended by Deloitte.
  • Tools: Digital systems such as the Microsoft Sustainability Manager streamline data collection and reporting.
  • External support: Engaging experts for strategy, training, and data management can accelerate compliance and reduce risk.

Conclusion: With a clear plan, the right technology, and targeted support, VSMEs can master the ESRS transition and unlock new opportunities for sustainable growth.

Main Hurdles of ESRS Compliance for VSMEs

Budget and Personnel Resources

An alarming figure: 88% of VSMEs feel inadequately prepared for the requirements. The main reasons are resource shortages, which look like this:

For example, Royal Philips was able to meet only 30% of ESRS data points in 2022 despite extensive experience—showing just how complex implementation really is (Philips Annual Report 2022).

These deficits highlight how important it is to understand ESRS regulations and their requirements in detail and to prioritize resource allocation early in the process.

Understanding ESRS Regulations

The technical complexity of the ESRS standards presents significant difficulties for many VSMEs. As the Accountancy Europe notes, “putting into practice the concepts of both presents challenges with understanding and implementation – and everyone is on a learning curve.”

The biggest stumbling blocks:

• Double materiality: Considering both financial and impact perspectives requires deep understanding and cross-functional collaboration (ESG Clarity).
• 1,100 data points: The ESRS framework includes an enormous number of defined data points, many of which are unfamiliar to SMEs.
• Diverse stakeholder requirements: Different expectations from investors, customers, and authorities, making prioritization essential.

Dealing with Data Requirements

In addition to challenges with budget and regulatory understanding, data management is also a key factor for successful ESRS implementation. According to Bain & Company, more than half (53%) of SMEs do not know what insights their data could provide. Common problems include:

• Data availability: Manual and time-consuming data collection, missing data on energy consumption, and incomplete personnel and HR data.
• Data quality: Without clear standards and regular checks, quality often remains insufficient. Key measures include uniform methods for data collection, regular review of data quality, and careful documentation for transparency.
• Interface management: Coordination between departments and external partners is crucial. As one organization put it, “what we learned is that education and communication are essential to drive progress against this exercise.” Necessary steps include efficient collaboration between internal teams, integration of various data systems, and clear communication with external stakeholders.

These points show that successful ESRS compliance requires far more than just technical adjustments—it demands a comprehensive rethink and a structured approach.

Voluntary Sustainability Reporting Standard for non-listed SMEs

Steps to ESRS Implementation

After outlining the key challenges, here is a clearly structured concept for the step-by-step implementation of ESRS requirements. Industry experts recommend a phased approach to reduce complexity and spread costs over time (Deloitte).

Step-by-Step Plan for the Transition

A well-thought-out phased plan is crucial to ensure ESRS compliance for small and medium-sized enterprises (VSMEs):

An interesting aspect: In 51% of cases, efficiency potentials are discovered during implementation, according to Deloitte.

Practical Reporting Tools

Specialized tools can greatly simplify the implementation process. One such tool is the Microsoft Sustainability Manager:

• Essentials version: €4,000 per tenant/month
• Premium version: €12,000 per tenant/month
• Supports efficient management and reporting of ESG data.

Other platforms, such as Greenomy, offer tailored solutions for SMEs, including double materiality analysis and automated reporting. A real-world example comes from CFO Carlo Jansen, who reported in March 2024:

“My team was initially nervous about ESG reporting, but thanks to the support of the Greenomy consulting team, the double materiality analysis went really smoothly. We will definitely promote Greenomy in the industry.”

Seeking Expert Assistance

Since many companies operate with limited internal resources, it is advisable to rely on external expertise. Professionals can ensure the success of ESRS implementation in various areas:

• Strategic planning: Experts help integrate ESRS into existing business processes and develop individual sustainability plans.
• Training and development: Employee training is essential to understand the requirements of ESG reporting. In fact, 35% of companies measure the success of their ESG initiatives by employee engagement (McKinsey).
• Ongoing support: Regular review and adjustment of reporting processes, as well as compliance with new requirements, ensure long-term success.

Frida Stolpe, Senior Associate at Position Green, highlights the benefits:

“VSME reporting offers multiple advantages—it helps companies improve internal decision-making, meet growing stakeholder expectations, and optimize ESG data management. For companies that may become subject to ESRS in the future, introducing VSME now ensures a smooth and structured transition.”

Setting Up Data Systems for ESRS

After the strategic implementation steps, building efficient data systems is the next important step to create the technical foundation. According to Deloitte, robust data management is the backbone of successful ESRS compliance.

Required Data Points

ESRS reporting covers over 1,100 data points, divided into three main categories:

An overview of the most important standards and their respective data points:

• ESRS 2 General Disclosures: 219 data points
• E1 Climate Change: 214 data points
• S1 Company Workforce: 196 data points
• E4 Biodiversity and Ecosystems: 122 data points

Note: Not all data points are relevant for every company. A thorough materiality analysis helps identify the truly relevant key figures (Accountancy Europe).

Collecting these key figures requires targeted approaches and methods.

Data Collection Methods

To efficiently manage the multitude of defined data points, precise collection methods are essential. Iyngaran Panchacharam, an expert in sustainability technology and AI, describes ESG data management as an "ecosystem" that integrates various sources and processes (Forbes).

Key collection methods:

• Internal data sources: A central ESG data management system consolidates data from various departments.
• External data sources: Public databases such as the World Bank or Data.gov provide contextual information.
• Automated collection: Sensors and IoT devices enable real-time data collection.
• Manual collection: Interviews and structured questionnaires are used to gather qualitative data.

The quality of the collected data depends on several factors:

• Uniform collection methods ensure consistent data quality.
• Clear documentation of data sources and calculation approaches is essential.
• Independent third parties should regularly review the data.
• A solid data protection concept safeguards sensitive information.

Worth noting: 75% of data managers do not yet have end-to-end data management, and 79% use more than 100 different data sources (Deloitte).

A balanced mix of automation and manual control is crucial. While AI tools greatly facilitate data collection and processing, human expertise remains indispensable. Such integrated data systems are the foundation for successful ESRS compliance and the further development of sustainable business strategies.

Aligning Growth and ESRS Goals

Once the technical foundations are in place, the next step is to firmly anchor ESG practices in growth strategies. According to McKinsey, 85% of companies now integrate ESG reporting into their business models, and those that do often see improved financial performance.

ESG Practices as a Pathway to Sustainable Growth

Strategically integrated ESG practices can drive long-term growth. For small and medium-sized enterprises (VSMEs), this means embedding sustainability goals into their expansion plans from the outset.

A vivid example comes from the UK firm DLRC: Through an agreement with the landlord that included a rent freeze, the entire office was converted to energy-efficient LED lighting, reducing costs and environmental impact (DLRC Group).

Key success factors:

Adapting to New Regulations

Collecting ESG data remains a challenge—80% of companies report this (Deloitte). For VSMEs, it is crucial to build systems and processes that can flexibly respond to new regulatory requirements.

Practical steps for preparation:

• Materiality-first approach
  Focus on the relevant topics by analyzing materiality. This allows you to address risks and opportunities in a targeted way (ESG Clarity).
• Data management strategy
  Develop a robust system for ESG data. The Corporate Sustainability Reporting Directive (CSRD) includes over 140 sustainability indicators—a solid data management system is essential here.
• Stakeholder communication
  Communicate regularly and clearly with your stakeholders to foster trust and transparency.

These measures create a solid foundation for successfully driving the ESRS transformation.

Action Steps

To effectively transition to ESRS compliance, you should take the following measures based on the strategies previously outlined.

Immediately begin structured collection of your ESG data—such as energy consumption, waste management, and occupational safety. This data forms the basis for ESRS reporting.

Key Areas and Recommended Measures:

Additionally, identify your sector-specific ESG priorities to allocate resources efficiently and effectively.

A practical starting point is to use the simplified VSME standards, published on 17 December 2024. These help ease the initial implementation, especially when capturing Scope 1 and Scope 2 emissions.

Immediately Actionable Steps:

• Implement a digital data management system.
• Thoroughly document your ESG initiatives.
• Train your staff on ESG fundamentals.

By implementing these steps early, you not only establish a solid foundation for ESRS compliance but also stand to benefit from advantages like better credit conditions.

FAQs

How can small and medium-sized enterprises (SMEs) overcome resource constraints in ESRS implementation?

SMEs can address limited resources in implementing the European Sustainability Reporting Standards (ESRS) through targeted actions. One approach is to offer employee training to build necessary knowledge of the requirements. Collaboration with external consultants or using specialised software can also significantly ease the process.

A step-by-step approach can help relieve internal resources. A materiality assessment allows companies to identify and prioritise key sustainability issues, focusing efforts where they matter most. It is also essential to allocate sufficient funding to the sustainability department to ensure efficient and long-term success.

How can companies ensure their ESG data meets ESRS requirements?

Companies can improve ESG data quality by taking targeted measures. Regular data audits and internal reviews are key to ensuring that data is both accurate and complete. Establishing standardised processes for data collection and processing promotes consistency and increases transparency.

Employee training is also essential. Only when all involved understand and properly implement ESRS requirements can ESG data meet the expected standards. In addition, using modern data management systems can significantly streamline data collection, validation, and reporting, making the entire process more efficient.

How can external consultants effectively support SMEs in ESRS implementation?

External consultants can be highly valuable for SMEs when implementing the European Sustainability Reporting Standards (ESRS). With their expertise and experience, they help navigate the often complex requirements and develop customised solutions.

For companies with limited internal resources, consultants play a crucial role. They help establish efficient reporting processes that comply with legal requirements while addressing the specific needs of the business. This makes implementation much faster and more effective.

Consultants also offer access to essential networks and tools required for ESRS compliance. This not only helps SMEs meet regulatory expectations but also strengthens their competitiveness and long-term sustainability performance.