The Problem with ESG Software: Challenges and Solutions

Environmental, social, and governance (ESG) reporting has shifted from optional to essential. For small and medium-sized enterprises (SMEs), demonstrating sustainability performance is now tied to financing, growth, and reputation. Yet, many SMEs find that the very tools designed to help — ESG software — often create more problems than they solve.

Most ESG software platforms were built for multinational corporations, not for SMEs with lean budgets and small compliance teams. High costs, complexity, and rigid workflows make ESG adoption harder, not easier. Many ESG software solutions are over-engineered for SMEs, including unnecessary features that do not address the specific needs of smaller businesses, such as practical factors like energy efficiency and waste management. At the same time, consultants often overcharge while offering one-size-fits-all solutions.

So, where does that leave SMEs? The answer lies in rethinking ESG reporting: adopting practical frameworks, affordable solutions, and clear governance practices that balance compliance with efficiency.

Key Takeaways

• ESG software often fails SMEs due to cost, complexity, and poor customization.

• SMEs can succeed by focusing on high-quality ESG data, frameworks, and smarter reporting processes.

• Affordable alternatives, such as ESG Reporting Kits, offer control and flexibility without the high costs of software or consultants.

Introduction to ESG Challenges

For SMEs, ESG challenges begin with fragmented sustainability data. Energy metrics may live in facilities spreadsheets, diversity numbers in HR databases, and supply chain audits in email attachments. With regulations tightening — from the Corporate Sustainability Reporting Directive (CSRD) to the Sustainable Finance Disclosure Regulation (SFDR) — this patchwork approach creates stress and risk. Collecting data from these multiple sources is time-consuming and error-prone, making it essential for SMEs to streamline data collection to improve efficiency and meet compliance requirements.

Traditional ESG software is rarely the answer. Instead of simplifying, many platforms overwhelm SMEs with unnecessary features. Consultants, meanwhile, often charge steep retainers while leaving companies dependent on external expertise.

The reality: SMEs need scalable ESG solutions that simplify data collection, ensure audit readiness, and deliver business value without draining resources.

ESG Data Management

The Core Challenge

Accurate ESG reporting starts with strong ESG data management. Without reliable sustainability data, companies cannot produce meaningful ESG disclosures. Poor data weakens stakeholder trust and invites accusations of greenwashing.

For SMEs, the main problem is fragmented data. High-quality ESG data requires integration — something most software vendors promise but rarely deliver at a cost SMEs can afford. Additionally, verifying reported data is essential to ensure transparency and reliability in ESG disclosures.

Why It Matters

• Operational efficiency: Consistent data collection saves hours of manual reporting.

• Audit readiness: Structured data governance prevents panic during compliance checks.

• Trust: Investors, partners, and customers want evidence, not empty claims.

Automating data collection with fit-for-purpose tools helps SMEs reduce risk, improve financial reporting, and strengthen corporate strategy.

Data Collection and Governance

Why Governance Cannot Be Ignored

Strong governance practices ensure sustainability data is accurate, consistent, and useful. By establishing clear oversight and accountability, governance also promotes responsible business practices in ESG data management. Without governance, even detailed ESG data can mislead, creating reputational damage.

Steps for SMEs

1. Define relevant ESG data based on frameworks like GRI or SASB.

2. Assign ownership — make ESG data everyone’s responsibility, not just one manager’s.

3. Establish validation processes to maintain integrity.

4. Prevent fragmented data by centralizing collection systems.

Robust governance strengthens both compliance and credibility. It also enables companies to generate meaningful insights that drive business value.

ESG Metrics and Frameworks

Choosing a Framework

Frameworks guide ESG reporting, helping SMEs focus on material issues. The ESG framework serves as a comprehensive structure for standardizing and improving ESG reporting across organizations. Commonly used frameworks include:

• GRI (Global Reporting Initiative) – Comprehensive, multi-stakeholder focus.

• SASB (Sustainability Accounting Standards Board) – Financial materiality by sector.

• IIRC (International Integrated Reporting Council) – Integrates ESG with financial reporting.

The Non-Financial Reporting Directive is a key EU regulation that mandates non-financial disclosures, ensuring large companies report on ESG and sustainability information. Mandatory reporting requirements are essential for consistency and transparency in ESG disclosures, as they establish clear, legally mandated standards and validation processes across industries. The Carbon Disclosure Project is another important standardized system, collecting and sharing corporate data on carbon emissions to enhance transparency and comparability in environmental reporting.

The right framework depends on sector, market expectations, and investor focus. Many SMEs use a hybrid approach, combining elements of multiple sustainability frameworks.

ESG Metrics That Matter

• Carbon emissions and energy efficiency

• Water and waste management

• Human resources diversity

• Supply chain ethics

These ESG metrics provide transparency and highlight opportunities for efficiency and brand reputation.

ESG Maturity and Adoption

The ESG Journey

SMEs advance through stages of ESG maturity:

• Early stage: Compliance-driven, minimal data collection.

• Growth stage: Alignment with ESG frameworks, broader adoption.

• Mature stage: ESG embedded into corporate strategy and integrated into business models, creating business value.

Assessing ESG themes is essential for measuring and advancing ESG maturity, as these key issues are incorporated into frameworks and benchmarking processes.

Why It Matters

ESG maturity drives access to capital, sustainable investing opportunities, and competitive advantage. Institutional investors increasingly screen companies for ESG performance, reflecting the growing importance of ESG investing in shaping investor decisions. Those without credible reporting risk exclusion.

Effective ESG Reporting

The Trust Factor

Effective ESG reporting is more than compliance — it’s a communication tool. Transparent reports build trust with regulators, investors, and stakeholders.

Practical Steps

• Use frameworks like GRI or SASB.

• Highlight both successes and challenges.

• Provide clear ESG disclosures backed by high-quality ESG data.

A report that is authentic and audit-ready demonstrates both accountability and commitment.

ESG Factors and Risks

The Business Impact

Climate change, labor issues, and governance failures affect financial performance. ESG risks can lead to lost contracts, regulatory penalties, and reputational damage.

How SMEs Can Manage ESG Risks

• Map ESG risks across operations.

• Integrate ESG risks into existing risk frameworks.

• Create ESG strategies aligned with corporate sustainability goals.

Proactive ESG risk management builds resilience and signals long-term value to stakeholders.

Data Management Systems

A well-designed data management system strengthens ESG reporting. Instead of relying on spreadsheets, SMEs should centralize non-financial data for consistency and audit readiness. However, many small and medium-sized enterprises face challenges in implementing ESG systems due to high costs, limited budgets, and ongoing expenses, making it difficult for them to adopt these solutions.

Benefits include:

• Consolidated ESG disclosures across business units.

• Tools for automating repetitive data collection.

• Clear alignment with sustainability frameworks.

ESG Reporting Options: A Comparison

Here’s how ESG Reporting Kits, ESG Software, and Consultants compare for SMEs:

ESG reporting software refers to specialized tools designed to facilitate data collection, ensure compliance, and streamline reporting for ESG frameworks such as CSRD and ESRS. These tools often offer automation, regulatory alignment, customization, and integration capabilities tailored to the needs of businesses and investors.

For SMEs, ESG Reporting Kits often strike the best balance: affordable, flexible, and empowering businesses to retain control without recurring costs.

When comparing these ESG reporting options, consider how each can impact your ESG score, which is increasingly used by organizations and investors to evaluate ESG performance and inform strategic decisions.

ESG Industry Best Practices

Best practices for SMEs include:

• Benchmarking ESG performance against industry peers.

• Updating ESG disclosures regularly.

• Training employees on ESG data collection.

• Using ESG tools that enhance audit readiness.

• Producing regular sustainability reports to provide transparency and accountability.

Tracking and reporting on sustainability efforts helps organizations improve their ESG performance.

By aligning with global best practices, SMEs build credibility and open doors to sustainable funds.

Conclusion

The problem with ESG software is not lack of technology, but lack of accessibility. For SMEs, most platforms are overbuilt, overpriced, and overwhelming. Consultants, meanwhile, often create dependency rather than empowerment.

The smarter path lies in tailored ESG solutions — like ESG Reporting Kits — that provide structure, guidance, and control at a fraction of the cost. By focusing on governance, frameworks, and best practices, SMEs can achieve effective ESG reporting, improve ESG performance, and demonstrate corporate sustainability with confidence.

SMEs that act now will be better positioned for regulatory requirements, investor scrutiny, and stakeholder expectations tomorrow.

FAQs

1. Why is ESG reporting important for SMEs?

ESG reporting proves commitment to sustainability, supports compliance, and builds credibility with stakeholders and investors. It is also important for SMEs to integrate ESG considerations into their core business strategies to ensure long-term success and resilience.

2. What is the main problem with ESG software?

Most ESG software is costly, complex, and designed for large corporations, making it unsuitable for SMEs.

3. How can SMEs collect relevant ESG data effectively?

By centralizing data inputs, automating collection, and following frameworks like GRI or SASB.

4. What ESG metrics should SMEs prioritize?

Carbon emissions, waste management, workforce diversity, and ethical supply chain practices.

5. How do governance practices reduce ESG risks?

Governance ensures accurate ESG data, prevents greenwashing, and strengthens business accountability.

6. What is ESG maturity?

It measures how well ESG is embedded into strategy, from basic compliance to full integration.

7. How does ESG affect financial performance?

Companies with strong ESG performance attract investment, reduce risks, and achieve sustainable growth.

8. Can SMEs manage ESG without expensive software?

Yes, using ESG Reporting Kits and practical frameworks enables accurate reporting without major costs.

9. Why are investors pushing for ESG disclosures?

Investors view ESG data as essential for risk management and long-term financial materiality. Financial market participants are also required to comply with ESG disclosure regulations, ensuring transparency and accountability in their reporting practices.

10. How do SMEs prepare for audit readiness?

By maintaining high-quality ESG data, centralizing collection, and aligning with frameworks.

11. What’s the difference between ESG frameworks like GRI and SASB?

GRI focuses on broad stakeholder impacts, while SASB emphasizes financial materiality by industry.

12. How often should SMEs update ESG reports?

At least annually, though some metrics like carbon emissions benefit from quarterly updates.

13. What role does ESG play in supply chain management?

Strong ESG practices reduce risks from labor violations, environmental issues, and compliance gaps.

14. How can SMEs improve ESG scores?

By benchmarking against peers, adopting frameworks, and demonstrating measurable progress.

15. What’s the advantage of an ESG Reporting Kit?

It provides affordable, easy-to-use templates and frameworks that put control back in SME hands.

About ESG The Score

ESG the Score makes it easy for small and medium businesses to stay ahead of ESG reporting requirements and growing supply chain audit pressures. We understand that SMEs are often downstream from larger entities and face increasing demands for transparency and compliance. Our solutions are designed to be quick, smart, and affordable, giving you the right tools without heavy consulting fees or complex software. From ESG reporting kits to core policy bundles and IT compliance frameworks, we simplify sustainability and make it actionable. With ESG the Score, companies can take control of their reporting, build trust with partners, and stay competitive in their industries. You may also try out ESG Reporting Toolkits for Canada, United States, India, United Kingdom, Australia.