Sustainability expectations for SMEs have increased rapidly in recent years – and with good reason. Consumers, financiers, and especially large corporate clients are demanding more information about how companies consider environmental impacts, social responsibility, and good governance. But which direction is this development heading? And what happens if SMEs wait and see?

The EU's Sustainability Reporting Standards (ESRS) and the utilizing CSRD (Corporate Sustainability Reporting Directive) have been key steps towards more transparent corporate responsibility. With CSRD, the reporting obligation is gradually expanding to medium-sized companies as well, and the aim is to bring sustainability reporting to the same level of seriousness as financial reporting.

However, the EU Commission's proposal published in spring 2025 (so-called Omnibus Simplification) shook the field. The proposal lightens and delays regulation so that CSRD would only apply to companies with more than 1,000 employees. The goal is to improve the EU's competitiveness and reduce administrative burden. At the same time, however, uncertainty was also created: will SMEs now miss the opportunity – or the responsibility – to systematize reporting?

It is true that reporting should not unduly burden small businesses. But if mandatory regulation is canceled or postponed to the distant future, the threat is the wilding of sustainability reporting. Everyone reports what they want, the risk of greenwashing increases, and reliability suffers. Fortunately, the pressure of subcontracting chains remains: large companies still need data from their SME partners.

The easing of regulation does not mean that responsibility disappears. On the contrary: it creates space for pioneers. Those SMEs that invest in reporting now gain a competitive advantage in the eyes of customers and other stakeholders. When regulation inevitably expands sometime, they will be ready. Those who are waiting now may find that time has passed them by – and large companies are looking for more responsible partners.

The OP Group's Large Corporate Research 2025 (Finland) shows that large companies anticipate changes in their subcontracting chains due to sustainability requirements. This is a clear message: if SMEs want to stay in the game, they must act now – not in five years.

Fortunately, the voluntary reporting model VSME (Voluntary Sustainability Reporting Standard for SMEs) designed for SMEs offers ways to proceed, even if CSRD does not yet directly apply. VSME's basic module focuses on measurable ESG data points and lowers the reporting threshold. The extended module, in turn, brings a more analytical approach and future perspectives. This phasing gives companies the opportunity to grow with reporting – which is in itself a learning process and a strategic investment.

Is VSME a Good Standard for Voluntary Reporting?

If the CSRD directive, which obligates large companies, is eased or postponed, many SMEs will also have to consider their own reporting framework and model. VSME has been criticized for being too narrow and not giving a sufficient picture of the sustainability of the company's operations. Another criticism has been that it does not connect enough to the company's business. The lack of sustainability practices can be a financial risk for the company – and on the other hand, sustainability actions can become a competitive advantage for the company.

My own opinion is that VSME is an excellent basis for SME sustainability reporting, whether the reporting is done at the request of a stakeholder subject to regulation or purely voluntarily. Especially its basic module is a clear and consistent starting point for those reporting ESG issues for the first time. The biggest benefit the company gets for itself is when it also analyzes the questions of the extended module – and links the analysis to financial risks and opportunities. VSME is not perfect, but it is the best we have right now.

Legislators still have an important role. Europe must remain a pioneer, even in difficult times. This requires consistent but guiding regulation, and public authorities must create concrete incentives to develop the reporting capacity of SMEs. Public procurement could be a special lever in this.

Sustainability should not remain the exclusive right of large companies. Responsibility is now part of the competition – and at its best, its future.

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Martta Ääri

Martta Ääri is a corporate responsibility expert and trainer, as well as a founding partner of Aila.Earth Oy.