The Corporate Sustainability Reporting Directive (CSRD) will bring significant changes for German SMEs from 2026. Companies are facing new challenges, but also opportunities that they can use to improve their sustainability reporting and strengthen their competitiveness. In this two-part blog post, we look at the specific requirements and benefits of the CSRD for SMEs.

SMEs and sustainability reporting

German SMEs are characterized by a close connection between ownership and corporate governance. As a result of this structure, many SMEs were not previously classified as companies of special public interest under the Non-Financial Reporting Directive (NFRD) and were therefore exempt from the reporting obligation. However, with the extension of the reporting obligation by the CSRD, many large SMEs will also have to publish sustainability reports from 2026. This particularly affects companies without a capital market orientation, which now have to collect a wide range of information from their own operations, their supply chain and from important customers.

Specific requirements of the CSRD

With the introduction of the Corporate Sustainability Reporting Directive (CSRD), German SMEs will be faced with a wide range of new requirements that will bring about a profound change in previous reporting practices. These requirements aim to ensure a more comprehensive and accurate presentation of companies' sustainability performance. In the following, we present the key changes and their impact on SMEs:

1. concept of dual materiality

A significant new aspect is the requirement that sustainability reports must take into account the concept of dual materiality. This means that companies must report both on issues that have financial significance (and are therefore relevant for investors) and those that have a significant impact on people and the environment (relevant for the stakeholders concerned). This approach significantly expands the scope of reporting compared to the previous one-dimensional materiality approaches.

2. extension of the reporting boundaries

The CSRD also requires companies to disclose important aspects of their value chain. This considerably expands the reporting boundaries, as data points must be recorded along the company's supply, marketing and distribution channels. Medium-sized and small companies in particular could find themselves challenged by the introduction of extensive documentation processes and the provision of the necessary personnel capacities.

3. integration into the management report

Another difference to previous reporting practices is the mandatory integration of sustainability information in the management report. Sustainability aspects are to be clearly structured and separated from other information in the management report. The aim is to promote integrated reporting that emphasizes the importance of sustainability.

4. necessity of external audits

In future, sustainability reports will be required to be verified by independent audits, similar to financial reports. Until reasonable assurance can be obtained, a limited assurance review is required.

Required structures and processes

The implementation of the new reporting obligations requires the creation of new structures and processes within the company. Among other things, many companies must first establish systems to systematically record their CO2 emissions and other relevant data. A survey conducted by the Institut für Mittelstandsforschung Bonn (IfM) revealed that only around 17% of the companies surveyed had systematically recorded their own CO2 emissions at the time of the survey. The collection of information from the value chain in particular represents a major challenge, as this requires data from direct and indirect suppliers and customers.

Recommendation for action

Start developing the necessary structures and processes for sustainability reporting at an early stage. Systematic planning and implementation can help you overcome the challenges and efficiently meet the requirements of CSRD. If you have any questions, please contact our team of experts at Five Glaciers for initial, no-obligation support.

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