Small Giants, Big Impact: How CSRD is Reshaping SME Sustainability

While the headlines have been buzzing about CSRD and its effects on large multinational corporations (MNCs), there's been a notable silence about its profound influence on SMEs.

In Europe, there are a staggering 24.4 million SMEs, with a mere 700 being listed companies. Yet, these SMEs make up 99.8% of an average enterprise's suppliers and customers, significantly contributing to their Scope 3 emissions.?

This underscores the vital role SMEs play in the business ecosystem. As multinational corporations extend the reach of CSRD throughout their supply and value chains, SMEs are beginning to feel the impact in a big way.

At Future Planet, we've observed a surge in inquiries from the SME sector in recent months. Many SMEs are grappling with the fear of losing valuable existing business and facing exclusion from future tenders and opportunities if they can't effectively meet the burgeoning sustainability requirements in RFPs that are just around the corner.

While it's encouraging to note that 39% of SMEs[1] either have a carbon footprint reduction strategy in place or plan to develop one, they are grappling with notable challenges in their sustainability journey. These hurdles, which I'll explore in detail in an upcoming blog post, are worth delving into, as they shed light on the path ahead.

One significant challenge is the scarcity of 'green' skills in SMEs, a recognized factor hindering their adoption of sustainability measures[1]. This capacity and competency deficiency may explain why many SMEs have yet to grasp the full spectrum of business benefits, from resource optimization to cost savings. Needless to say, this comes on top of their current resource constraints. ?

However, those SMEs that dare to infuse sustainability into their operations are uncovering avenues for improvement—improved energy and resource management, reduced waste, and heightened supply chain transparency and cost savings.

These efforts not only align with the requirements of multinational corporations but also rev up operational efficiency, trim expenses, and cushion against risks linked to resource scarcity and environmental impacts. By streamlining processes and adopting sustainable technologies, SMEs can not only improve their competitiveness but also become active contributors to a more sustainable supply chain.

The question we're asked most often is: "Where do I start?"

For any SME, particularly those part of the extended value chain for customers impacted by CSRD, a smart starting point is the Voluntary Sustainability Reporting Standard (VSRS). It's tailored for non-listed SMEs that fall outside CSRD's purview.

In Europe, EFRAG wields the legal mandate to craft sustainability reporting regulations, including CSRD, for businesses on regulated markets. Simultaneously, they're crafting optional sustainability reporting guidelines for smaller companies not subject to these rules. These optional guidelines won't be mandatory but will harmonize with CSRD, offering a straightforward route to sustainability.

The current draft of VSRS comprises 14 principle disclosures, each with three disclosures per principle and has 5 main objectives:

1. Helping SMEs join the move towards a low-carbon economy.
2. Making it easier for SMEs to access sustainable finance without competing unfairly with larger companies.
3. Avoiding extra costs for SMEs during the transition.
4. Meeting sustainability expectations set by stakeholders for SMEs.
5. Minimizing the negative effects of the 'trickle-down effect

Another source of support and resources for SMEs is often hiding in plain sight: their own extensive customer base. While integrating sustainability practices into business operations may seem like an overwhelming challenge for SMEs lacking resources and expertise, they are not alone on this journey. MNCs, alongside their CSRD reporting, are also focusing on how they engage with their supply chain partners—constituting 99% of companies worldwide—and drive them toward sustainable practices.

These larger enterprises are well-equipped to provide resources, training, and guidance to help SMEs meet their sustainability requirements. By doing so, they not only reduce their own Scope 3 emissions but also cultivate stronger partnerships and contribute to the development of more sustainable business ecosystems.

If you have inspiring examples about how large enterprises are helping SME suppliers accelerate their sustainability journeys, we'd love you to share them. If you would like more information on #CSRD or #VSRS or on implementing sustainable supply chains please reach out to me. Together, we can drive meaningful change towards a more sustainable future.

[1] European Commission, Flash Eurobarometer 498: SMEs, green markets and resource efficiency, 2021

[2] Annual Report on European SMEs 2021/2022 SMEs and environmental sustainability Background document

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