How do small and mid-sized companies approach CSRD compliance in 2026?

Why these blogs? Most leaders still believe in a quiet trade-off: you can do right by your people and the planet, or you can deliver strong returns—but not both. The data tells a different story. Companies that genuinely serve all their stakeholders don’t just feel better to work for; they outperform the market, attract the best talent, and weather crises far better than their competitors. The Conscious Business approach offers a practical, proven way to turn that “either/or” into a powerful “and”—and it starts with understanding where your organization stands today.

In 2026, small and mid-sized companies in the EU with more than 250 employees, a net turnover above €50 million, or a balance sheet total above €25 million are required to comply with CSRD if they meet at least two of those three criteria. For companies that fall under the CSRD for the first time this reporting cycle, the regulation is no longer a distant concern — it is an immediate operational reality. This article unpacks the key questions SMEs are asking right now, from scope and reporting requirements to the practical steps that turn compliance into a genuine competitive advantage.

Which small and mid-sized companies are required to comply with CSRD in 2026?

In 2026, CSRD compliance applies to large companies that were not already captured in the first reporting wave. Specifically, companies that meet at least two of the following three criteria fall within scope: more than 250 employees, a net annual turnover exceeding €50 million, or a balance sheet total above €25 million. These companies must report on their 2025 sustainability data in their 2026 annual reports.

It is worth noting that listed SMEs have a slightly different timeline and may benefit from voluntary simplified reporting standards. However, for non-listed companies that cross the size thresholds above, there is no opt-out. The regulation applies regardless of sector, and subsidiaries of larger groups may also fall within scope depending on how the parent company consolidates its reporting. If your organization sits close to any of these thresholds, it is worth conducting a precise assessment now rather than assuming you are exempt.

One important nuance: the CSRD is not just a reporting exercise. It is a signal that regulators, investors, employees, and customers increasingly expect companies to demonstrate how they create value beyond financial returns. That shift in expectations is already reshaping how talent evaluates employers and how supply chain partners assess risk.

What sustainability information does CSRD require companies to report?

CSRD requires companies to report sustainability information across three broad domains: environmental, social, and governance (ESG). This is structured around the European Sustainability Reporting Standards (ESRS), which cover topics including climate change, biodiversity, water use, workforce conditions, human rights in the value chain, business conduct, and governance structures. Reports must be included in the company’s management report and audited by a third party.

The level of detail required goes well beyond what most SMEs have historically tracked. On the environmental side, companies need to report on Scope 1, 2, and 3 greenhouse gas emissions, energy consumption, and their approach to climate-related risks. On the social side, the standards require disclosure of workforce composition, pay equity, health and safety performance, and how the company manages its relationships with employees, communities, and supply chain partners.

Governance disclosures include information about board-level oversight of sustainability matters, anti-corruption policies, and how sustainability is integrated into business strategy and incentive structures. For HR leaders and People and Culture managers, the social and governance pillars are particularly relevant — they directly touch employee engagement, leadership accountability, and organizational culture, all of which need to be documented and evidenced rather than described in general terms.

How does the double materiality assessment work for smaller companies?

The double materiality assessment is the process by which a company identifies which sustainability topics are material to its reporting. It requires companies to evaluate materiality from two directions: impact materiality (how the company’s activities affect people and the environment) and financial materiality (how sustainability issues create risks or opportunities for the business). Both dimensions must be assessed, and the results determine which ESRS disclosures are required.

For smaller companies approaching this for the first time, the double materiality assessment can feel overwhelming. The good news is that not every ESRS topic will be material for every company. A manufacturing business with a complex supply chain will have very different material topics than a professional services firm. The assessment process involves engaging with stakeholders — employees, customers, suppliers, investors, and community representatives — to understand which sustainability issues they consider most significant.

In practice, smaller companies often find that the double materiality process surfaces issues they were already aware of but had not formally documented. Employee well-being, leadership culture, and the company’s broader social impact frequently emerge as highly material topics, particularly when workforce-related risks are assessed through a financial lens. High employee turnover, for example, is not just a human cost — it is a measurable financial risk that belongs in a materiality assessment.

What are the most common CSRD compliance challenges for SMEs?

The most common CSRD compliance challenges for SMEs are data availability, internal capacity, and the cost of third-party assurance. Most smaller companies do not have the systems in place to collect and verify the granular sustainability data that ESRS requires, and building those systems while simultaneously running the business stretches already lean teams.

Beyond the technical data challenges, many SMEs struggle with three deeper issues:

Fragmented ownership: Sustainability reporting touches finance, HR, operations, legal, and leadership simultaneously. Without clear ownership and cross-functional coordination, the process stalls or produces inconsistent information.
Scope 3 complexity: Reporting on emissions and social impacts in the value chain requires cooperation from suppliers and customers who may not yet have their own data infrastructure. This is particularly challenging for companies with diverse or international supply chains.
Connecting reporting to strategy: Many companies treat CSRD as a compliance exercise rather than a strategic one. This leads to reports that satisfy the letter of the regulation but miss the opportunity to demonstrate genuine stakeholder value — which is ultimately what the regulation is designed to encourage.

The companies that navigate these challenges most effectively are those that treat the CSRD not as a burden imposed from outside, but as a framework that helps them articulate and measure what they are already trying to build: a business that creates lasting value for everyone it touches.

How can SMEs connect CSRD reporting to their company culture and purpose?

SMEs can connect CSRD reporting to their company culture and purpose by treating the reporting process as a mirror rather than a checkbox. The ESRS disclosures on workforce, governance, and business conduct directly reflect the quality of an organization’s leadership, the health of its culture, and the clarity of its purpose. Companies that have invested in these areas find that CSRD reporting validates and communicates what they have already built.

For HR and People and Culture leaders, this connection is especially powerful. The social standards within CSRD require companies to report on how they attract, develop, and retain talent — topics that sit at the heart of any serious employee engagement improvement strategy. Documenting these practices for CSRD purposes creates an opportunity to assess whether current initiatives are genuinely effective or whether they exist primarily on paper.

Translating organizational purpose into strategy is not just a leadership aspiration — under CSRD, it becomes a reporting requirement. Companies must explain how their sustainability commitments are embedded in their governance structures and business model. This forces a productive conversation about whether the company’s stated values are reflected in how decisions are actually made, how leaders behave, and how performance is measured and rewarded.

We work with organizations to make this connection explicit and actionable. Our CB Scan assessment helps companies understand how consciously they currently operate across purpose, leadership, culture, stakeholder relationships, and business model — the same dimensions that CSRD reporting ultimately reflects. When organizations can see where they stand across these pillars, connecting compliance to strategy becomes a natural next step rather than an abstract goal.

What practical steps should SMEs take to prepare for CSRD in 2026?

SMEs preparing for CSRD in 2026 should take six practical steps: conduct a double materiality assessment, audit existing data systems, assign clear internal ownership, engage stakeholders early, align sustainability reporting with business strategy, and seek third-party assurance in advance of the reporting deadline.

Breaking these down into a workable sequence:

Start with materiality: Before collecting any data, identify which sustainability topics are genuinely material to your business. This scopes the entire reporting effort and prevents wasted time on disclosures that do not apply to your situation.
Audit your data infrastructure: Map where sustainability-relevant data currently lives across your organization — HR systems, finance, operations, procurement — and identify the gaps between what you have and what ESRS requires.
Assign ownership across functions: CSRD cannot be owned by one person or one department. Establish a cross-functional working group with clear accountabilities and a senior sponsor who can resolve conflicts and secure resources.
Engage your stakeholders: Employees, customers, suppliers, and community representatives all have perspectives that inform your materiality assessment and strengthen the credibility of your report. Early engagement also builds the internal buy-in needed to sustain the effort.
Align with your business strategy: Use the CSRD process as an opportunity to review whether your sustainability commitments are genuinely integrated into your business model and leadership practices. A conscious business approach treats this alignment as foundational rather than cosmetic.
Plan for assurance early: Third-party assurance of sustainability reports is required under CSRD. Engaging an assurance provider early in the process — rather than at the end — reduces the risk of last-minute surprises and helps identify data quality issues before they become compliance problems.

The companies that approach these steps with genuine intent rather than minimum compliance tend to discover something valuable: the process of preparing for CSRD surfaces the organizational strengths and gaps that matter most for long-term resilience. That insight is worth far more than the report itself.

The pressures aren’t slowing down: disengaged teams, tightening regulations like the CSRD, and AI that amplifies every crack in a weak foundation. The companies that thrive won’t be those who wait — they’ll be the ones who build a stronger foundation across purpose, leadership, culture, stakeholders, and business model before they’re forced to. The good news is you can see exactly where you stand — and where your biggest opportunities lie — in just a few minutes. Take the Conscious Business Scan here

Frequently Asked Questions

What happens if an SME misses the 2026 CSRD reporting deadline?

Missing the CSRD reporting deadline can result in regulatory penalties, reputational damage, and increased scrutiny from investors and supply chain partners. Enforcement mechanisms vary by EU member state, as each country is responsible for implementing and policing the directive locally — but non-compliance is not a low-risk option. If your organization is behind, the most important step is to start the double materiality assessment immediately, as this scopes everything else and demonstrates good-faith effort toward compliance.

Do subsidiaries of larger groups need to file their own CSRD report?

It depends on how the parent company structures its consolidated reporting. If a subsidiary is fully included in a parent company's CSRD-compliant consolidated report, it may be exempt from filing a separate report. However, this exemption requires specific conditions to be met, including that the parent's report is publicly available and covers the subsidiary's sustainability data. If you are a subsidiary approaching the 2026 threshold, it is essential to clarify with your parent group whether you are covered — and to get that confirmation in writing well before the reporting deadline.

How much does CSRD compliance typically cost for an SME?

Costs vary significantly depending on the maturity of your existing data systems, the complexity of your value chain, and whether you engage external consultants. For most SMEs, the main cost drivers are data infrastructure upgrades, internal staff time, and third-party assurance fees — which alone can range from €10,000 to €50,000 or more depending on company size and report complexity. Investing early in a structured materiality assessment and cross-functional ownership model tends to reduce total costs by preventing rework and last-minute scrambles before the reporting deadline.

What is the difference between CSRD and ESG reporting frameworks like GRI or TCFD?

CSRD is a mandatory EU regulation with legal reporting obligations, while frameworks like GRI (Global Reporting Initiative) and TCFD (Task Force on Climate-related Financial Disclosures) are voluntary standards that companies can choose to adopt. The European Sustainability Reporting Standards (ESRS) used under CSRD were designed with significant reference to these existing frameworks, so companies already reporting under GRI or TCFD will find meaningful overlap. However, CSRD goes further by requiring double materiality, third-party assurance, and inclusion of sustainability data within the official management report — making it more rigorous and legally binding than voluntary frameworks.

How should HR and People & Culture leaders prepare their teams for CSRD's social disclosure requirements?

HR and People & Culture leaders should begin by auditing what workforce data they currently collect and how consistently it is tracked — covering areas like turnover rates, pay equity, health and safety incidents, training hours, and workforce composition. The ESRS social standards require this data to be evidenced and auditable, not simply described in narrative terms. This is also a valuable opportunity to assess whether existing people initiatives — engagement programs, DEI efforts, leadership development — are generating measurable outcomes that can be reported with confidence, or whether they need to be redesigned to produce trackable results.

Can CSRD compliance actually help SMEs win new business or attract better talent?

Yes — and this is one of the most underappreciated strategic benefits of CSRD for SMEs. Large enterprise customers and procurement teams are increasingly requiring their suppliers to demonstrate sustainability credentials as part of vendor qualification, meaning CSRD-compliant SMEs gain a concrete competitive advantage in B2B sales. On the talent side, research consistently shows that purpose-driven, transparent organizations attract higher-quality candidates and retain employees longer — and a credible CSRD report is tangible proof of those qualities, not just a marketing claim.

What is the best way to get started if our company has done very little sustainability reporting so far?

The best starting point is a double materiality assessment, even a lightweight version, to identify which sustainability topics genuinely matter for your specific business before you invest time collecting data. Pair this with an honest internal audit of where sustainability-relevant data already exists across your HR, finance, and operations systems — you will likely find more than you expect. From there, assigning a cross-functional working group with a senior sponsor and a clear timeline transforms what feels like an overwhelming compliance project into a manageable, phased process with measurable milestones.