CSRD and Sustainability Reporting for Small and Medium-Sized Businesses

The EU's new sustainability reporting rules are becoming a reality for many businesses, and while the largest companies are first in line, a growing number of SMEs are already feeling the pressure from customers, banks, and business partners. Here is a clear overview of what CSRD is, who is directly obligated, and what you can do right now.

What is CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is an EU directive that replaces the previous NFRD (Non-Financial Reporting Directive). Its purpose is to make sustainability reporting more consistent, comparable, and credible across Europe. The directive requires companies to report on environmental, social, and governance (ESG) matters according to a shared set of standards known as ESRS (European Sustainability Reporting Standards).

CSRD was adopted in 2022 and is being phased in gradually starting from the 2024 financial year. A key new element is that reports must be audited by an external auditor and included in the company's official management report.

Who is directly obligated?

The obligation is introduced in three waves:

• From financial year 2024 (report in 2025): Large listed companies with more than 500 employees that were already covered by the NFRD.
• From financial year 2025 (report in 2026): Other large companies meeting at least two of three criteria: more than 250 employees, turnover above EUR 40 million, or a balance sheet above EUR 20 million.
• From financial year 2026 (report in 2027): Listed SMEs with between 10 and 249 employees. These companies will be able to use a simplified standard (LSME ESRS).

Non-listed SMEs with fewer than 250 employees are not directly subject to CSRD as a starting point. However -- and this is important -- they may become indirectly obligated, because large customers and business partners are requesting sustainability data as part of their own reporting.

The indirect effect: supply chains are pressuring SMEs

Even if your company is not directly required by law, you may still feel the effects of CSRD. Large companies that must report on their own value chain (scope 3 emissions and social conditions among suppliers) will ask you, as a sub-supplier, to document your ESG data. This is already happening across many industries, including manufacturing, transportation, and food production.

Banks are another channel. Financing terms and loan conditions are increasingly tied to sustainability profiles, and lenders use ESG data to assess risk. This means that strong data discipline on environmental and social matters can have a direct impact on your financing options.

Concrete steps you can take now

There is no need to wait for a legal obligation. Here is a practical approach:

1. Map your current position. Review which ESG data you already collect -- for example energy consumption, waste volumes, and employee turnover. Many companies have more data than they realise; it is often spread across accounting systems, HR platforms, and procurement records.

2. Identify the gaps. Compare your data collection against the topics covered by ESRS: climate, biodiversity, water, circularity, labour conditions, human rights, and governance. Prioritise the topics most relevant to your industry.

3. Establish simple processes. You do not need expensive software from day one. Start with a structured spreadsheet or a basic tracking system that ensures data is collected consistently each quarter.

4. Talk to your auditor. CSRD requires external auditor sign-off for companies that are directly obligated. Even as an SME, it is wise to have a conversation with your auditor about which standards and processes are expected.

5. Keep track of regulatory developments. The European Commission has proposed adjustments to CSRD (the so-called Omnibus package from 2025), which may alter thresholds and requirements. This is a dynamic regulatory framework, and you need to stay up to date with changes as they occur.

What do the ESRS standards cover?

ESRS are the shared reporting standards that underpin CSRD. They are divided into cross-cutting standards and topic-specific standards. The cross-cutting standards (ESRS 1 and ESRS 2) establish the framework for identifying which topics are material for your specific company -- a process known as double materiality assessment. This process looks at two angles: the impact your company has on the outside world (impact materiality), and the financial risk or opportunity that sustainability matters represent for your company (financial materiality).

You do not need to report on every topic. The assessment helps you exclude the topics that are not relevant to your specific operations.

Frequently asked questions

Is my company with 50 employees directly subject to CSRD? No, not directly. Companies with fewer than 250 employees (that are not listed on a stock exchange) are generally exempt. You may, however, be asked for ESG data by your customers or banks.

What does it cost to get started with sustainability reporting? It depends on where you are today. Many SMEs can start with existing data and simple processes without major investment. The most important thing is to get started rather than waiting for the perfect solution.

What is the difference between CSRD and ESG? ESG (Environmental, Social, Governance) is the broad concept covering sustainability matters within a company. CSRD is the EU directive that sets out how and when certain companies must report on ESG.

Let Legiant keep track of it for you

Sustainability reporting rules are changing fast, and keeping up can be challenging for a busy business owner. Legiant automatically monitors new requirements and updates to CSRD and ESRS, so you always know what applies to your company -- without spending hours reading EU legislation. Get started with confidence today with Try Legiant for free.