CSRD

    CSRD and SMEs: What Actually Applies to Your Business

    Most SMEs are not directly required to report under the CSRD. But if you supply to large companies or want bank financing, you'll face ESG data requests regardless. The EU's answer for unlisted SMEs is the voluntary VSME standard, officially recommended by the European Commission on 30 July 2025. Since then, the Omnibus I package has been adopted as Directive (EU) 2026/470 (in force 18 March 2026), narrowing mandatory CSRD scope and introducing a binding value-chain cap that protects smaller suppliers. A VSME delegated act, expected in June 2026, will give the standard a formal legal basis. This guide tells you exactly where you stand and what to do next.

    What Is the CSRD?

    The Corporate Sustainability Reporting Directive (CSRD) is the EU law that requires companies above a certain size to publish annual reports on their environmental, social, and governance (ESG) performance. It replaced the older Non-Financial Reporting Directive (NFRD) and is far more detailed. Companies in scope must report against the European Sustainability Reporting Standards (ESRS), a set of standards developed by EFRAG. The first wave of large companies started reporting for financial year 2024.

    Does CSRD Apply to My SME?

    Short answer: for the vast majority of SMEs, no, and since the Omnibus I reform, that is clearer than ever.

    Two things determine whether mandatory CSRD reporting applies to you: your size, and, under the original directive, whether you were listed. The Omnibus I reform has simplified this picture considerably.

    Listed SMEs

    Under the original CSRD, listed SMEs were due to be pulled into mandatory reporting in a later wave. That is no longer the case. Since the adoption of Omnibus I (Directive (EU) 2026/470), listed SMEs that fall below the new size thresholds are fully exempt from mandatory CSRD reporting. Being listed on a regulated market no longer, on its own, places an SME in scope.

    Unlisted SMEs (the vast majority)

    If you are not listed on a regulated market and fall below the size thresholds, the CSRD does not apply to you directly. Full stop.

    This covers the overwhelming majority of European SMEs, sole traders, family businesses, private limited companies, cooperatives. You have no mandatory sustainability reporting obligation under the CSRD.

    The size thresholds to know

    The thresholds in practice

    Since the Omnibus I reform, the directive sets the mandatory CSRD threshold at more than 1,000 employees AND more than €450 million in net turnover, two cumulative conditions. A company must exceed both to be in scope. These rules apply to financial years starting on or after 1 January 2027. In practice, this means:

    • More than 1,000 employees AND more than €450M net turnover → mandatory CSRD reporting
    • Below those thresholds (the vast majority of SMEs, listed or not) → no direct reporting obligation; the voluntary VSME standard is available — and ESG compliance for SMEs explains what that means in practice

    The EU Omnibus I Reform. What Changed

    The EU Omnibus package is the Commission's major push to simplify EU regulation and reduce the administrative burden on business. For sustainability reporting, it brought two decisive changes for SMEs, and it is now adopted law, not a proposal.

    1. Mandatory CSRD scope was significantly narrowed.

    The original CSRD would eventually have pulled in many mid-sized companies. Directive (EU) 2026/470, adopted by the Council on 24 February 2026, published in the Official Journal on 26 February 2026, and in force since 18 March 2026, limits mandatory reporting to companies exceeding both 1,000 employees and €450 million in net turnover. Listed SMEs below those thresholds are fully exempt.

    2. The Commission recommended the VSME standard, and a binding value-chain cap was introduced.

    On 30 July 2025, the European Commission adopted a formal recommendation encouraging all non-listed SMEs, and any company outside the revised CSRD scope, to use the VSME standard for voluntary sustainability reporting. This is the first time the EU has given SMEs a single, standardised framework designed specifically for their size and capacity.

    The value-chain cap

    Crucially, Omnibus I goes further than a recommendation. It establishes a binding value-chain cap: a company within CSRD scope cannot require a partner with fewer than 1,000 employees to provide more ESG information than the VSME standard covers. Smaller suppliers now have the right to refuse requests that exceed that scope. This is no longer an invitation. It is a legal ceiling, and it makes VSME-level disclosure the effective baseline for supply-chain ESG requests across Europe.

    A VSME delegated act, expected in June 2026, will define that voluntary standard in detail and give it a formal legal basis beyond the current recommendation.

    What Is the VSME Standard?

    The VSME (Voluntary Sustainability Reporting Standard for non-listed SMEs) is a streamlined ESG reporting framework developed by EFRAG, the EU's technical advisory body for sustainability reporting, under a mandate from the European Commission. Today it is carried by a Commission recommendation; the delegated act expected in June 2026 will give it a formal legal basis.

    It covers the same environmental, social, and governance topics as the full ESRS, but is tailored to the size, resources, and capacity of smaller companies. The standard has two modules:

    • Basic module: a short set of essential disclosures (workforce data, energy use, key environmental impacts).
    • Comprehensive module: a fuller picture for SMEs that want to go deeper, designed to answer the most common requests from banks and large customers.

    You don't have to complete both. Many SMEs start with the Basic module and expand over time.

    In practice, the most accessible way to produce a VSME disclosure is through the VSME Medals: a data-collection tool aligned to the medal level you target, combined with the supporting evidence required, leading to an independently audited recognition. Rather than a static PDF, you get a structured, verifiable result.

    Indirect CSRD Pressure. The Supply Chain Effect

    Even if you're not directly in scope, you may already be feeling the pressure. This is the supply chain effect, and it's the main reason unlisted SMEs need to care about CSRD-driven ESG compliance.

    Here's how it works:

    1. A large company, say, a retailer or manufacturer with 5,000 employees, is subject to mandatory CSRD reporting.
    2. Its ESRS disclosures require it to report on sustainability risks across its value chain, including suppliers.
    3. It sends you a questionnaire asking for your energy consumption, carbon emissions, workforce data, or supplier code of conduct.
    4. If you can't answer, you risk losing the contract, or being deprioritised in favour of a supplier who can.

    Banks and investors are doing the same thing. Financial institutions subject to the EU's Sustainable Finance Disclosure Regulation (SFDR) need ESG data on the companies they lend to. If you're applying for a green loan or sustainable finance product, expect to be asked.

    The corporate sustainability dynamic is therefore not just about legal obligations. It's about commercial relationships.

    The good news

    The good news: the value-chain cap introduced by Omnibus I means large companies cannot ask you for more than the VSME standard covers. So if you report against the VSME, you have a ready-made, EU-aligned answer to virtually any supply chain ESG request.

    How to Prepare Your SME for ESG Reporting

    You don't need a sustainability team or a consultant to get started. Here's a practical sequence that works for most small businesses.

    Step 1. Understand what's being asked of you.

    Collect the ESG questionnaires or data requests you've already received from customers or banks. Map what they're asking against the VSME Basic module disclosures. In most cases, the overlap is near-total.

    Step 2. Gather your baseline data.

    The VSME Basic module asks for things you likely already track:

    • Number of employees and basic workforce breakdown
    • Total energy consumption (check your utility bills)
    • Whether you have an environmental or health & safety policy

    Start with what you have. Don't wait for perfect data.

    Step 3. Decide on your scope.

    Basic module only, or Basic + Comprehensive? If your customers are only asking for energy and workforce data, start with Basic. If you're targeting green financing or want to differentiate in tenders, the Comprehensive module gives you more to show.

    Step 4. Document and communicate.

    A VSME disclosure doesn't need to be a polished 50-page PDF. Through the VSME Medals, you complete a data-collection tool matched to your target level, attach the supporting evidence, and obtain an independently audited medal. What matters is that your reporting is consistent, honest, and repeatable year on year, and that it carries external recognition.

    Get Recognised for Your ESG Efforts

    Completing a VSME disclosure is a real achievement, but it's invisible unless you can show it.

    VSME Medals is a formal recognition programme for SMEs that adopt the VSME standard. It is an independent signal to customers, banks, and partners that your sustainability data is structured, EU-aligned, and trustworthy.

    Here's why that matters in practice:

    • Procurement teams at large companies increasingly filter suppliers by ESG credentials. A recognised VSME Medal gives you a clear, verifiable answer.
    • Banks and investors offering sustainable finance products want evidence of ESG practice, not just a self-declaration. A VSME Medal provides that third-party signal.
    • Your own team benefits from the clarity and structure that comes with a recognised framework. It's not just for external audiences.

    The VSME standard is the EU's own recommended tool for SMEs. Getting formally recognised for using it is the logical next step once you've done the work.

    Ready to get recognised for your VSME compliance?

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