The landmark Corporate Sustainability Reporting Directive (the CSRD) is poised to extend the ESG (environmental, sustainability, and governance) reporting requirements to tens of thousands of companies. This also includes some small and medium enterprises (SMEs). Yes, even the little guys aren’t off the hook this time. 

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It’s a first-of-its-kind regulation that also targets SMEs in the European Union (EU), which make up about 99% of the region's businesses. Clearly, the powers that be mean business when it comes to accountability and transparency. 

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So, which SMEs exactly will need to report their ESG data? How will they report this data? And when will the directive go into effect for them? You’ll find all the answers in this article. 

Which SMEs will be impacted by the CSRD?

According to the CSRD, all companies (undertakings) listed on a securities market in the EU are liable to report their ESG data. If you’re an SME, congratulations, you’ve got some reporting to do! 

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Those listed SMEs may or may not be from the EU. For instance, a non-EU SME listed on one of the stock exchanges in the EU is also required to report. In addition, the listed SMEs must also meet at least two of the three criteria below:

• €8+ million in net turnover
• €4+ million assets
• 50+ employees

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Phew! If you don’t meet two of these, you’re off the hook. For now.

When will the CSRD go into effect for SMEs?

The CSRD technically went into effect in January 2023, but its implementation is phased. For listed SMEs meeting the CSRD threshold, the first financial year to be reported is 2026 (in 2027). But even then, they can postpone reporting for another two years. That means that as a listed SME in the EU, you must start reporting by 2028. 

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In the grand scheme of the CSRD, SMEs are the second-last to be impacted. Companies are already required to report under the predecessor of the CSRD, and large companies will be targeted first. Lucky for you, the big fish are getting fried first.

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This phased approach was taken to give SMEs and non-EU enterprises (last to be impacted) ample time to prepare for reporting. It also gives the EU authorities time to finalise the reporting framework for companies much smaller than most other listed companies. Take a deep breath; there’s still time to get your ducks in a row. 

What are the requirements for SMEs under the CSRD?

Now, here’s where things get interesting (in a good way). The CSRD relies on European Sustainability Reporting Standards (ESRS), the framework specifying the reporting requirements. Think of it as your ESG reporting cheat sheet. 

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The ESRS includes 12 ESG areas that collectively cover over 1,200 data points. These are sector-agnostic requirements (although sector-specific ESRS are in the works). Two of the 12 ESG areas are cross-sector, five are environment-specific, four are social issues-specific, and one is governance-specific. 

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The CSRD acknowledges that SMEs may not have the capabilities or resources to comply with the general ESRS. The European Financial Reporting Advisory Group (EFRAG) introduced simplified ESRS exclusively for SMEs to ensure the requirements are proportionate to their size and complexity. 

Simplified ESRS

While the CSRD has made it compulsory for listed SMEs of a certain size to report ESG data, it has done so with consideration. See? They’re not total monsters. First, to-be-impacted SMEs have enough time to prepare for reporting. Second, they have a simplified version of ESRS. 

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The complexity of ESG reporting frameworks has been a roadblock for medium and small businesses in reporting any environmental data. But here’s the good news: ESG reporting may be seen as a regulatory requirement, but it’s quickly becoming a strategic move. With investors keen on ESG data before opening their wallets, disclosing data is in the interest of SMEs looking to grow. 

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Unfortunately, the lack of mandatory reporting and complex frameworks have discouraged SMEs from voluntarily reporting ESG data. That, of course, is changing with the CSRD and simplified ESRS. 

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According to the draft of the simplified ESRS, the requirements have a two-layer approach. 

• A sector-agnostic layer for all the eligible listed SMEs
• A layer specific to SMEs that are banks, captive insurance, and reinsurance

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Unlike the regular ESRS framework, which will also have sector-specific requirements by 2026, simplified ESRS has no sector-specific requirements. The simplified ESRS framework is set to be finalised by the end of 2024. So, impacted listed SMEs will have the framework ready well before the voluntary reporting deadline of 2027 and the mandatory deadline of 2029. 

How many SMEs are expected to fall under the CSRD threshold?

The CSRD will impact over 49,000 companies operating in the EU. According to EFRAG, over 700 listed SMEs will be impacted by the CSRD and will need to report ESG data. In addition, over 2,300 small and non-complex credit institutions (SNCIs) and 300 captive insurances and reinsurances will also fall under the listed SME category. 

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This number could have been huge had the CSRD not targeted listed SMEs only. As many SMEs that meet the turnover and employee numbers criteria aren’t public, they’re not yet required to report ESG data. 

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In terms of EU countries, Germany has the most SMEs and SNCIs that the CSRD will impact. After Germany, Poland, Greece, France, and Denmark have the most listed SMEs.

What do SMEs need to do to prepare for the CSRD?

Although SMEs are some of the last entities to be required to report under the CSRD, it’s better to start preparing already. 2026 and even 2028 will be here before you know it!

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If you represent an SME in the EU that meets the CSRD thresholds and are listed on a securities exchange in a member state, here’s what you should do to prepare for ESG reporting:

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Understand the requirements 

First, read the official documents and try to understand the requirements and reasoning behind them. If reading long documents makes your eyes glaze over, don’t worry; AI tools can summarise them for you. Handy, right? 

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The simplified ESRS has yet to be finalised. Once it’s available, you should be most concerned with that document, which details the actual data you need to collect and report on. Translation: wait for the easier version before you dive in.  

Engage stakeholders

Next, it’s time to engage your company's internal and external stakeholders. Internal stakeholders include leadership and employees, whereas external stakeholders may include investors, partners, and suppliers. Get everyone on the same page early. Nothing kills efficiency like last-minute chaos. 

Establish processes for data collection

The good news is that as an SME, your reporting requirements may not be as complex or extensive as those of large undertakings. Still, depending on your operations, vendors, suppliers, and customers, you may need to collect a lot of data. Better start now. 

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You may want to set up pipelines for data collection, particularly for data that are not directly under your control (for example, from a supplier). Implement processes to collect, sort, and analyse the data according to the ESRS. 

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Identify data points you’ll need to report on, such as energy, transport, materials, activities, etc. You may already be collecting some or most of that data. Audit your processes to identify any gaps in data collection and work on them already. 

Develop a sustainability strategy

Part of the CSRD reporting requirement is double materiality. It requires companies to assess the materiality of their ESG impacts, risks, and opportunities (IROs). This process is called a double materiality assessment, which considers both impact materiality and financial materiality. 

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SMEs are going to have simplified materiality (sustainability material to their operations exclusively). Still, it’s best to explore how operations can be improved to bring down the ESG impact. 

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Again, the whole point of the CSRD and ESRS is to create transparency and encourage companies to become more sustainable. So, reporting data alone isn’t on the agenda. Companies should also showcase their plans and efforts to reduce the environmental impact. And for that, you need a strong sustainability strategy. 

Acquire the right tools

Most importantly, invest in ESG tools that make data collection, analysis, reporting, and compliance easy. A dedicated ESG tool can help you optimise the process and designate fewer human resources to it (SMEs are already short on people for such a purpose). 

Get started with ESG reporting

The EU’s CSRD aims to bring as many companies into mandatory reporting as possible. So far, it’s succeeding. It’s going to impact companies that represent nearly 75% of total business revenue. Needless to say, the implications will be big. 

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SMEs have so far been exempt. However, those listed are no longer exempt from reporting ESG. Time to join the big leagues. They must put processes in place and make investments to prepare for reporting by 2028 at the very latest. 

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Pro tip: View this new regulation as an opportunity rather than an obligation. The lack of ESG data makes big companies outcompete SMEs from investments and subsidies. SMEs, the backbone of the EU economy, can now attract eco-conscious investors and satisfy their consumers more transparently. 

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comundo empowers SMEs to gather and report data on their energy consumption. For many businesses, energy data forms the biggest chunk of their emission numbers. comundo can automate data collection and make it easier to comply with the CSRD while giving you data to become more sustainable and reduce costs (a definite win, no matter how you look at it).