SMEs can leverage ESG reporting to enhance transparency, meet stakeholder expectations, and unlock business opportunities. Find out how!
In the business landscape of 2025, Environmental, Social, and Governance (ESG) considerations have become a central topic for companies worldwide. For Small and Medium-sized Enterprises (SMEs), effectively collecting and reporting ESG data is no longer an option but a necessity due to market and regulatory demands.
Meeting regulatory requirements, satisfying market expectations, and ensuring long-term sustainability require a structured approach to ESG data management.
Understanding ESG Data for SMEs: Regulatory Disclosure Requirements
Although SME usually don’t fall under the present major regulations directly, given the size and turnover threshold, the implication of such directives in a value chain perspective makes it critical for SME to understand the scope and implications of such Regulations.
Due Diligence and Supply Chain Implications of the CSDDD
The Corporate Sustainability Due Diligence Directive (CSDDD), enacted in 2024, requires companies to identify, assess, and address negative impacts on human rights and the environment arising from their own operations and throughout their value chains.
While the primary targets of this directive are large corporations, SMEs will be indirectly affected, especially if they are part of supply chains involving businesses subject to these regulations.
As a result, even SMEs that are not directly regulated will need to adopt ESG data collection practices to maintain business relationships with larger firms and meet stakeholder expectations.
The Omnibus Simplification Pack
In response to concerns over the regulatory burden on smaller enterprises, the European Commission has introduced the first draft of the Omnibus Simplification Pack, aimed at streamlining ESG reporting obligations for SMEs with a directive that seeks to alleviate administrative complexity while ensuring that sustainability disclosures remain meaningful and aligned with broader EU objectives.
The Pack includes provisions that simplify reporting requirements, reduce the frequency of disclosures for smaller entities, and introduce proportionality measures to balance compliance costs with the capacity of SMEs.
EFRAG LSME and VSME Standard
With the advent of the first draft of the Omnibus simplification package and to facilitate compliance with the CSRD and improve ESG transparency among smaller businesses, the European Financial Reporting Advisory Group (EFRAG) has developed tailored sustainability reporting standards for Listed SMEs (LSME) and Voluntary SMEs (VSME).
The LSME standard provides a simplified yet robust framework for listed SMEs that fall under the CSRD’s reporting requirements, ensuring consistency with the European Sustainability Reporting Standards (ESRS) while considering the limited resources of smaller firms.
Meanwhile, the VSME standard offers a voluntary reporting framework for non-listed SMEs, allowing them to align with ESG expectations and improve access to sustainable financing and business requirements related to the value chain of big corporations that usually work with them.
ESG Data Collection for SMEs
Implementing a structured ESG data collection system is essential for SMEs looking to comply with regulatory frameworks and improve their sustainability performance.
The process of Data Collection comprises different stages as described below.
Step 1: Data Mapping
The process begins with data mapping, which involves identifying the specific ESG metrics relevant to the industry and key stakeholders.
Companies must determine which data points are required by regulators, which are valuable to investors, and which resonate with customers.
In this context, many businesses rely on frameworks such as the Global Reporting Initiative (GRI) to guide them in defining relevant ESG indicators.
Step 2: Data Sourcing
Once the necessary ESG metrics have been identified, the next step is data sourcing.
This involves determining where and how to obtain the required information, which may come from internal departments, suppliers, external databases, or publicly available reports.
For SMEs that rely on external partners, supplier engagement is crucial in obtaining accurate and reliable ESG data.
Establishing transparent communication channels ensures that sustainability-related information is collected consistently across the supply chain.
Step 3: Data Collection
After sourcing the data, SMEs must implement efficient data collection mechanisms.
Many businesses still rely on manual reporting processes, which are prone to errors and inefficiencies. In this case, digital solutions can streamline data collection, automate reporting, and enhance accuracy.
Companies that invest in ESG management software benefit from real-time data acquisition and seamless integration with reporting frameworks.
Step 4: Data Cataloguing and Management
However, collecting ESG data is only part of the challenge.
Proper data cataloguing and management are essential for maintaining an organized and transparent system.
When it comes to data management, SMEs need to develop a structured approach to storing and processing their ESG information, ensuring easy access for compliance and decision-making purposes.
In this context, cloud-based data management solutions can provide a scalable and secure way to store ESG information while improving accessibility for internal teams and external auditors.
Benefits of ESG Data Collection for SMEs
Despite the challenges, implementing a well-structured ESG data collection system offers significant advantages for SMEs.
One of the most immediate benefits is regulatory compliance, reducing the risk of legal penalties while enhancing credibility with regulatory authorities.
Beyond compliance, ESG data collection strengthens market competitiveness.
A company that demonstrates a strong commitment to sustainability is more attractive to environmentally conscious consumers, investors, and business partners. Many large corporations now require their suppliers to meet ESG criteria, meaning SMEs with strong sustainability practices are more likely to secure long-term business relationships.
Moreover, operational efficiency improves as ESG data collection helps businesses identify areas for improvement, optimize resource utilization, and reduce inefficiencies. Companies that track their carbon emissions, energy consumption, and waste generation can implement cost-saving sustainability initiatives that improve their bottom line.
The future of SME ESG reporting is now
In conclusion, ESG data collection is no longer a secondary concern for SMEs—it is a critical business function that ensures compliance, strengthens competitiveness, and enhances long-term resilience.
By adopting structured data collection practices, leveraging technology, and engaging stakeholders, SMEs can navigate the complexities of ESG reporting and position themselves for sustainable growth in an increasingly responsible business environment.
