CSRD and SMEs: What Small and Medium Enterprises Need to Know About Sustainability Reporting

The Corporate Sustainability Reporting Directive (CSRD) is often discussed in the context of large corporations — the multinationals and listed companies that dominate the first wave of compliance. But if you run or advise a small or medium-sized enterprise (SME), dismissing the CSRD as "not my problem" could be a costly mistake.

Even if your company isn't directly in scope, the CSRD's ripple effects are already reaching SMEs through supply chain requirements, investor expectations, and market dynamics. Here's what you need to know.

Which SMEs Are Directly in Scope?

The CSRD applies in phases. Large companies and listed entities report first, but listed SMEs — those traded on EU-regulated markets — are explicitly included starting from financial year 2026 (reports due in 2027).

To qualify as an SME under the EU Accounting Directive, a company must not exceed two of these three thresholds:

• Balance sheet total: €5 million
• Net turnover: €10 million
• Average employees: 50

If your SME is listed on an EU-regulated market and meets SME criteria, you'll need to report. Micro-enterprises (fewer than 10 employees, under €450K balance sheet, under €900K turnover) are exempt even if listed.

What About Non-Listed SMEs?

Non-listed SMEs are not directly required to report under the CSRD. This is an important distinction. The European Commission deliberately excluded them from the mandatory scope to avoid disproportionate administrative burden.

However, "not required" doesn't mean "not affected." The indirect pressure is real and growing.

The Supply Chain Effect: Why Non-Listed SMEs Still Need to Care

Here's where things get practical. When large companies report under the CSRD, they must disclose sustainability information across their entire value chain — including suppliers, subcontractors, and business partners. This is especially visible in Scope 3 emissions reporting and the double materiality assessment process.

What this means in practice:

• Data requests from customers: If you supply goods or services to a CSRD-reporting company, expect questionnaires about your carbon footprint, labour practices, governance policies, and more.
• Supplier codes of conduct: Large companies are updating procurement policies to require ESG data from vendors.
• Contract requirements: Some companies are already making sustainability disclosures a condition for contract renewal.
• Preferred supplier status: Companies with ready ESG data gain a competitive edge in tenders and RFPs.

A 2025 survey by the European Federation of Accountants found that over 60% of large companies planned to request sustainability data from their SME suppliers within the first two years of CSRD implementation.

The Voluntary LSME Standards: A Proportionate Framework

Recognising the indirect pressure on SMEs, EFRAG (the body behind the ESRS standards) developed a voluntary reporting standard specifically for SMEs: the LSME (Listed SME) ESRS and the VSME (Voluntary SME) standard.

LSME ESRS

Designed for listed SMEs that fall under the CSRD's mandatory scope, this is a simplified version of the full ESRS. Key differences:

• Fewer data points: Roughly 60–70% fewer disclosures compared to the full ESRS set.
• Simplified materiality: A streamlined double materiality process.
• Transition period: Listed SMEs can opt out for the first two years (2026–2027) by including a brief explanation in their management report.
• No sector-specific standards initially.

VSME Standard

The VSME is truly voluntary and designed for non-listed SMEs who want to report — or who are being asked for data by larger partners. It comes in three modules:

1. Basic module: Core metrics like GHG emissions (Scope 1 & 2), energy use, workforce size, and governance basics. Can be completed in a few days.
2. Narrative-PAT module: Adds policies, actions, and targets. More context around the numbers.
3. Business Partners module: Specifically designed to answer the data requests that come down the supply chain from CSRD-reporting companies.

The Business Partners module is arguably the most strategically valuable. It's essentially a "response template" for the questionnaires your larger customers will send you.

Practical Steps for SMEs: Getting Started Without Overwhelm

You don't need to hire a Big 4 consultancy or invest six figures to get started. Here's a proportionate approach:

1. Understand Your Exposure

Map out your customer base. If more than 20% of your revenue comes from companies that report under the CSRD, sustainability data readiness should be a strategic priority — not a nice-to-have.

2. Start With the VSME Basic Module

The Basic module requires roughly 10–15 data points. Most SMEs already have this data somewhere — energy bills, payroll records, basic financial statements. The exercise is more about organising existing information than generating new data.

Key metrics to collect first:

• Total energy consumption (MWh) and mix (renewable vs. fossil)
• Scope 1 and Scope 2 greenhouse gas emissions (tonnes CO₂e)
• Total workforce by contract type and gender
• Work-related incidents and fatalities
• Governance structure and sustainability oversight
• Anti-corruption and anti-bribery policies

3. Anticipate Customer Questionnaires

Don't wait for the first data request to land on your desk. Proactively prepare a sustainability fact sheet or one-pager you can share with B2B customers. This positions you as a reliable, forward-thinking partner.

4. Align With Industry Initiatives

Many industry associations are developing sector-specific guidance for SME sustainability reporting. Check whether your sector has a template or platform that simplifies data collection.

5. Consider a Phased Approach

Year one: Collect baseline data (energy, emissions, workforce basics). Use the VSME Basic module as your framework.

Year two: Add narrative context — what policies do you have? What targets have you set? This aligns with the Narrative-PAT module.

Year three: Build out the Business Partners module. By now, you'll have a solid dataset to share with any customer questionnaire.

Common Mistakes SMEs Make

Ignoring the CSRD Entirely

"We're not in scope" is technically correct for most non-listed SMEs — but it ignores the supply chain reality. Companies that wait until a key customer demands data will scramble to comply under time pressure.

Over-Engineering the Response

Some SMEs, especially those advised by consultants used to working with large corporates, end up building reporting frameworks far more complex than necessary. The VSME standard exists precisely to prevent this. Start simple.

Treating It as a One-Off Compliance Exercise

Sustainability reporting is not a checkbox. The companies getting the most value from it are those that use the data to identify operational improvements — energy savings, waste reduction, employee retention. The reporting is the byproduct, not the goal.

Not Budgeting for It

Even a light-touch approach requires time. Budget 2–5 days of internal effort for the Basic module, or €2,000–€8,000 if you engage an external consultant. Knowing the typical costs upfront prevents sticker shock.

The Competitive Advantage Angle

SMEs that get ahead of sustainability reporting aren't just managing risk — they're building competitive advantage:

• Win contracts: Large companies increasingly prefer suppliers who can provide ESG data without friction.
• Access finance: Green loans, sustainability-linked lending, and ESG-focused investors all favour companies with transparent reporting.
• Attract talent: Younger employees consistently rank sustainability commitment among their top criteria for choosing employers.
• Future-proof: Regulatory scope tends to expand, not contract. What's voluntary today may be mandatory tomorrow.

What About Assurance?

Listed SMEs reporting under the CSRD will eventually need external assurance on their sustainability reports, starting with limited assurance. Non-listed SMEs using the VSME standard voluntarily do not need assurance — though having your data verified by an external party adds credibility.

For non-listed SMEs, a light-touch external review (not a full audit) typically costs €1,500–€4,000 and can significantly boost stakeholder confidence.

Next Steps

Whether you're a listed SME gearing up for mandatory reporting or a non-listed company preparing for supply chain data requests, the key message is the same: start now, start simple, and build incrementally.

The VSME standard gives you a clear, proportionate framework. Your customers will ask for this data. Your competitors are already preparing it. And the sooner you start collecting baseline metrics, the easier year-over-year comparisons become.

Need help navigating CSRD requirements for your SME? Browse our directory of CSRD consultants to find an expert who understands the specific challenges smaller companies face — without the large-company price tag.