The European Union’s Corporate Sustainability Reporting Directive (CSRD) has signaled a new era of corporate transparency, and while recent legislative updates have narrowed the mandatory scope, small and medium-sized enterprises (SMEs) must remain proactive. Compliance is not just about avoiding potential penalties—it is a strategic move that strengthens credibility with investors and partners. The original 2026 timeline for listedr SMEs has also shifted, but the "trickle-down" effect of the law means preparation cannot wait.Updated Scope: Is Your SME Mandatorily In Scope?
Under the recent Omnibus I Directive, the mandatory thresholds for CSRD compliance have been significantly raised, excluding many SMEs previously anticipated to fall within its scope. Mandatory reporting now only applies to companies that exceed both of the following criteria during the financial year:
- More than 1,000 employees on average.
- Net annual turnover above €450 million.
For listed SMEs, the first mandatory CSRD report is now due in 2028, covering data from the 2027 financial year, with an option to delay until 2029. However, all businesses should prepare, as their larger partners will inevitably require data for their own compliance.The Core Requirement: Double Materiality Assessment
The foundation of CSRD reporting is the Double Materiality Assessment (DMA). This critical step determines which sustainability topics are relevant (material) for your company and must be disclosed in your report. It considers two perspectives:
- Impact Materiality (Inside-Out): How your company's activities impact people and the environment (e.g., pollution, labor practices).
- Financial Materiality (Outside-In): How ESG risks and opportunities affect your business financially (e.g., transition risks, resource scarcity).
By conducting a DMA, companies ensure their reporting is focused only on genuinely material topics, simplifying the process and making the resulting report more meaningful.Key Preparations for SMEs
Even if your company is below the mandatory reporting threshold, a proactive compliance checklist will minimize disruption and mitigate risk from larger value chain partners. Here are the core areas where SMEs should focus preparation efforts:
- Track Material Usage: Start by meticulously tracking the usage of key materials, with a specific focus on plastics and packaging. This data forms the basis of your Scope 3 emissions calculations, which are now included under CSRD.
- Set Clear Reduction Targets: Define clear, measurable, and realistic goals for reducing your environmental and social impact. Your report must show a traceable connection between identified risks and the Policies, Actions, and Targets (PAT) you have adopted.
- Document Supply Chains: Understand where your materials come from to identify risks and potential data gaps. Crucially, the Value Chain Cap provides new legal protection for smaller companies, allowing them to refuse data requests from large partners that exceed the scope of the VSME (Voluntary Sustainability Reporting Standard for SMEs).
- Prepare Internal Reporting Systems: Move beyond simple spreadsheets and establish audit-ready internal controls for sustainability data. Systematic data collection, ideally using digital platforms that integrate internal systems, is essential for ensuring accurate ESG metrics for future reporting.
