I would do this by creating a component of type
Rule and calling this component from a separate rule that fires on one of the node save or node is updated events.
First create the component with two parameters of
node type and name them "referencing_node" and "referenced_node". Create conditions
Content is of type [your content type] for both referencing_node and referenced_node (this will bring in data selectors you need for the flagging user list and replacement patterns to construct your email subject and body). Next add a loop under
Actions and choose the data selector for
referenced_node:flag [your_flag]:user (Users who flagged the entity with flag [your_flag]) and name the list "flagging_users". Now add an action under your loop
System: send mail and in your data selector for the To: field, use
[flagging-users:mail] and also build your desired subject and message body from replacement patterns.
Next create a rule that calls your component with
React on event: After saving new content of type [your_content_type] (you can also create a separate rule later to react on event
After updating existing content however you need to build in conditions to prevent repeat email messages when no new references have been added). Now simply call your component as an action and provide your component's parameter with the variables from
node (for "referencing_node") and
node:your_reference_field_name (for "referenced_node").
I hope this helps you get the solution you are after.