The Corporate Sustainability Reporting Directive (CSRD) for large companies places corporate responsibility reporting alongside traditional financial reporting as an equal part of a company’s financial statements and annual report. This is a significant change that sets the direction for the future of corporate reporting across companies of all sizes. It is also important to understand what the CSRD directive means in practice for SMEs.
The European Sustainability Reporting Standards (ESRS), established under the CSRD, define the information that companies must report regarding the environmental, social, and governance-related sustainability impacts, risks, and opportunities they consider material. The European Commission has published two cross-cutting standards that apply to all companies within the scope of the directive, as well as ten topical standards. These topical standards are applied based on the company’s materiality assessment, regardless of the sector in which the company operates.
Who is subject to CSRD
The CSRD reporting obligation applies only to large companies with more than 1,000 employees. The first reporting year applicable to all large companies is 2027. The reporting obligation will be extended to listed SMEs in 2028.
Although the CSRD directive does not apply directly to SMEs, it has a significant indirect impact on them through value chains, customer requirements, and financing. In practice, this means that large companies will request sustainability information from their suppliers, and sustainability data will become part of supplier selection. Sustainability has also become a baseline expectation in calls for tenders. CSRD reinforces this framework, leading to the standardization of sustainability requirements and an increase in related information requests. In such a situation, an SME with nothing to report is in a weak position.
How should a small or medium-sized enterprise proceed?
Companies with fewer than 1,000 employees should focus on building a business-driven sustainability strategy rather than prioritizing CSRD reporting. The focus should be on key sustainability themes that are relevant to the company’s core business and stakeholder expectations. These themes can be identified through a simplified double materiality analysis and related stakeholder engagement. with a double materiality analysis and related stakeholder engagement.
A company can assess the current state of its sustainability work and identify development needs using a free self-assessment form. with a self-assessment formIt is Käkikuu’s practical tool, based on the EU’s voluntary VSME reporting standard and on our extensive experience in developing sustainability work in small and medium-sized enterprises.
Read more about the changing reporting requirements and their impact on SME sustainability work on Käkikuu’s blog.
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