Most SMEs are not directly in scope for CSRD. The mandatory reporting requirements apply to large companies and listed entities. But SMEs are increasingly affected by CSRD through a different route: their customers — large companies with CSRD reporting obligations — will ask for sustainability data as part of value chain reporting.
This article explains what directly applies to SMEs, what they face through value chain requirements, and how to prepare.
Direct CSRD Scope for SMEs
Listed SMEs
If your company is listed on an EU regulated market and meets the SME criteria (below the Wave 2 thresholds: fewer than 250 employees, under €40M turnover, under €20M assets), you are in Wave 3 of CSRD — with first reports covering financial year 2026, due in 2027.
Listed SMEs have a voluntary opt-out for financial years 2026 and 2027 — they can delay their first report by two years while the simplified ESRS for SMEs (ESRS VSME) is finalised. But the obligation does not go away; it just starts later.
Non-Listed SMEs
If you are not listed on an EU regulated market and do not meet the Wave 2 size thresholds (250+ employees, €40M+ turnover, €20M+ balance sheet total — meeting two of three), CSRD's direct mandatory reporting requirements do not apply to you.
That is the simple answer. But it is not the complete picture.
Indirect CSRD Requirements: Value Chain Reporting
Large companies subject to CSRD must report on sustainability in their value chain. ESRS 1 requires reporting on material impacts, risks, and opportunities in the company's upstream and downstream value chain — including suppliers.
What this means for SMEs:
If you supply products or services to large CSRD-reporting companies, you will receive sustainability questionnaires. These are not regulatory obligations on you — they are commercial requests from your customers who need data for their own reports. But practically, if you cannot provide the data, you risk:
- Being replaced by suppliers who can
- Failing to qualify in procurement processes that include sustainability criteria
- Providing competitive disadvantage relative to peers who are ESG-compliant
What data customers will ask for:
- Greenhouse gas emissions (Scope 1, Scope 2, and sometimes Scope 3)
- Energy consumption
- Key workforce metrics (health and safety incidents, pay gap data)
- Business conduct (anti-corruption policies, whistleblowing)
- Environmental certifications or policies
The Voluntary SME Standard: ESRS VSME
EFRAG is developing a voluntary sustainability reporting standard for SMEs — the ESRS Voluntary SME Standard (VSME). This is designed to:
- Help SMEs respond to value chain data requests from large companies
- Provide a simplified framework for SMEs that want to voluntarily report sustainability performance
- Be proportionate — significantly less burdensome than the full ESRS set
The VSME includes two modules:
- Module B (Basic): Fundamental data on emissions, energy use, workforce, and business conduct — the data large companies most commonly need from their supply chain
- Module N (Narrative): More detailed disclosure for SMEs that want to go further voluntarily
VSME status: EFRAG published the final voluntary VSME standard in 2024. It is available for SMEs to use now on a voluntary basis.
SME Preparation Priorities
If you are an unlisted SME with no immediate reporting obligation:
Priority 1: Understand your largest customers' CSRD timeline. If your major customers are Wave 1 or Wave 2 companies (reports due 2025 or 2026), their value chain requests will arrive in the next 12–24 months. Get ahead of them.
Priority 2: Start measuring emissions. Carbon footprint data (Scope 1 and 2 at minimum) is the most commonly requested metric. Many free and low-cost tools exist for SME carbon measurement (SME Climate Hub, Carbon Trust, national government tools).
Priority 3: Establish basic sustainability policies. Anti-corruption policy, health and safety policy, basic environmental management. These are standard baseline requirements and straightforward to document.
Priority 4: Collect workforce data. Headcount, gender split, health and safety incidents — basic workforce metrics that nearly all value chain questionnaires request.
If you are a listed SME preparing for Wave 3:
Year 1 priority: Double materiality assessment (simplified scope is appropriate).
Year 2 priority: Build data collection systems for material topics and prepare a ESRS VSME-aligned report.
Year 3: Engage an assurance provider. Limited assurance is required for listed SME reports.
CSRD as a Commercial Opportunity for SMEs
Many SMEs treat CSRD value chain requirements as compliance burden. The alternative framing: companies that can demonstrate sustainability performance differentiate themselves in procurement. As large company procurement processes increasingly weight sustainability alongside price and quality, an SME with a clear sustainability story and data to back it competes more effectively.
Early-mover SMEs that build sustainability reporting capability before it becomes table stakes will benefit from:
- Preferential supplier status with sustainability-focused customers
- Access to green finance and sustainable lending products
- Reduced risk of supply chain exclusion as large customers tighten requirements