In 2027, most SMEs in the EU are not directly required to report under CSRD or comply with CSDDD, unless they are large or listed on regulated markets. However, supplier data requests and some product regulations may still apply, so SMEs should be ready to respond using the voluntary VSME standard or tailored processes.
From 2027, the landscape of EU sustainability regulation for small and medium-sized enterprises (SMEs) is marked by significant changes and some persistent misconceptions. Most SMEs in Europe are not directly subject to the main sustainability reporting and due diligence directives entering force for larger companies, but they can expect information requests from business partners or face targeted obligations, depending on their size, sector or products. This article explains, with clarity and up-to-date sourcing, which EU sustainability rules SMEs must actually follow in 2027, how obligations depend on company characteristics, and how indirect requirements via supply chains and voluntary standards like VSME impact smaller businesses.
- The vast majority of SMEs are exempt from mandatory CSRD and CSDDD rules in 2027.
- Listed SMEs on regulated markets are mostly out of scope due to delayed and revised thresholds.
- Supplier questionnaires and product-specific rules may still create practical obligations for SMEs.
- The new Voluntary Standard for SME sustainability reporting (VSME) is designed to streamline these information demands.
The short answer: direct duties versus supplier requests
In 2027, only a small minority of SMEs are under mandatory EU sustainability reporting or due diligence rules. Under current EU law, nearly all SMEs are exempt from direct compliance with the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). However, indirect demands from large customers or supply chain partners—backed by voluntary standards such as VSME—mean SMEs should still prepare to answer sustainability questionnaires or demonstrate responsible practices, especially in sensitive product or sector areas. SMEs importing or manufacturing certain products also face specific compliance timelines under the EU Deforestation Regulation (EUDR), with simplified obligations.
CSRD: Which SMEs must report in 2027?
Most SMEs do not have to file a formal sustainability report under the CSRD in 2027. In particular, Directive (EU) 2026/470 (the Omnibus Package) introduced revised thresholds that take effect as of financial year 2027: only companies with at least 1,000 employees and €450 million net turnover are within scope for mandatory CSRD reporting from that financial year onwards[5]. These thresholds exclude ordinary SMEs unless they surpass these significant size markers. Previously, listed SMEs—those with securities traded on EU regulated markets—were due to come under the CSRD from the 2026 financial year, but under the legal adjustments in the Omnibus Package, listed SMEs are exempt from mandatory reporting in 2027 and beyond, unless they choose to opt in. If a listed SME chooses to report, it may use the simplified European Sustainability Reporting Standards for listed SMEs (LSME ESRS) or delay its obligations by formal opt-out until later years[2][5].
Crucially, private SMEs or listed SMEs beneath these size thresholds will not be obliged to publish a CSRD report for financial year 2027, though they may still be approached by business partners for sustainability information.
CSDDD: When does due diligence reach SMEs?
The Corporate Sustainability Due Diligence Directive (CSDDD, Directive EU 2024/1760) does not impose direct due diligence obligations on SMEs or micro-enterprises. Direct compliance under CSDDD is limited to very large companies, starting from July 2027 with those employing at least 5,000 people or posting annual turnover of €1.5 billion, and later expanding to cover other large undertakings in phases through 2029. SMEs remain outside the formal scope, though if they supply larger, covered companies (for example, as part of a tiered supply chain), they may be asked to provide information or adopt policies that enable their partners to meet their own legal requirements. The legislation includes safeguards and support measures, such as guidance and model contract clauses, and aims to keep requests proportionate[1].
Supplier questionnaires, VSME and the value-chain cap
Even if not directly covered by CSRD or CSDDD, SMEs frequently face requests for sustainability data from customers, financial institutions, or investors who must comply themselves. To address this indirect burden, the European Commission launched the Voluntary Sustainability Reporting Standard for SMEs (VSME) in July 2025. This simplified, market-accepted template guides SMEs in responding to such requests efficiently and consistently, helping shield them from being asked for excessive or divergent data[4]. Importantly, revised rules now include a 'value-chain cap,' a policy that protects entities with up to 1,000 employees from being asked for more detail than the VSME standard requires, at least for reporting purposes. However, the cap does not exempt businesses from all supplier data requests, especially if mandated by contract or by specific product laws.
The VSME is voluntary: no SME is obliged to adopt it unless a contract makes it so, but many may find it useful, especially as the number of sustainability requests from banks, customers, or public procurement bodies increases.
Product, sector and national rules: business activity matters
Separate from CSRD and CSDDD, certain EU and national regulations target individual sectors, products, or activities. For example, the EU Deforestation Regulation (EUDR, Regulation EU 2023/1115) imposes compliance requirements on micro and small enterprises dealing in commodities exposed to deforestation risks. From 30 June 2027, these businesses must at least practice enhanced record-keeping, even if subject to lighter rules than larger market operators[3]. Other SMEs may have to comply with packaging, chemicals, or environmental reporting requirements if they sell regulated products or operate in certain high-impact sectors. It is vital for SMEs to check which sectoral or product-specific obligations may apply to their business, as these rules are independent of general CSRD or due diligence scope. National implementation of some EU directives can also add local requirements, making periodic review essential.
Typical Problems: Navigating evolving scope and supply-chain pressure
The phased rollout and evolving thresholds of CSRD and CSDDD have created substantial uncertainty for SMEs. Many struggle to determine if, when, or how the latest legislative revisions and national transpositions affect them. Even where exempt, SMEs can feel pressure as larger business partners request extensive sustainability information—sometimes exceeding what SMEs can reasonably provide, despite safeguards and voluntary standards. This 'trickle-down' effect can become a practical compliance issue, especially where information demands are not tailored to SME capacity or sector context[5][1].
Recent Developments: Thresholds, delays, and voluntary standards
The adoption of Directive (EU) 2026/470 (Omnibus package) in mid-2026 stabilized the CSRD’s size thresholds for 2027, clarifying that genuine SMEs are outside direct reporting scope[5]. At the same time, the launch of the Voluntary SME Sustainability Standard (VSME) in July 2025 has yielded a practical solution for data sharing along supply chains, likely to see growing uptake as business-to-business sustainability requests escalate[4].
What SMEs should prepare now
It is essential that SMEs monitor current legislative developments and stay updated on both EU-level rules and national implementation. Even though most SMEs face no immediate legal obligation to publish sustainability reports or perform corporate due diligence under the EU rules in force for 2027, being able to respond to partners’ requests in a structured way is crucial for competitiveness and market access. SMEs should consider using the VSME template or a similar approach to streamline responses, review contracts for sustainability clauses, and check if any product- or sector-specific duties apply to their business lines. Preparation also means keeping internal records in good order, especially where contractual, product compliance, or sectoral requests are anticipated. The evolving landscape of EU sustainability regulation rewards readiness and adaptability for SMEs, even if most are not under direct legal obligations yet.
Sources
[1] Corporate sustainability due diligence (European Commission) (European Commission, 2022-05-10)
[2] FAQs: all you need to know about the Corporate Sustainability Reporting Directive - Accountancy Europe (Accountancy Europe, 2022-11-23)
[3] Roles and responsibilities - European Commission – EUDR timelines (European Commission)
[4] Commission presents voluntary sustainability reporting standard to ease burden on SMEs (European Commission, 2025-07-30)
[5] CSRD thresholds and scope – SuRe WU (WU – reporting research)
