CSRD for SMEs: how the cascade effect impacts your supply chain

The Corporate Sustainability Reporting Directive (CSRD) requires large European companies to publish detailed information on their environmental, social and governance (ESG) impacts. Although your SME is almost certainly not directly required to report, you will still feel its effect: your obliged clients will ask you for verifiable ESG data about your activity. This is known as the cascade effect.

Important: the framework changed a great deal in 2025 and 2026. The EU Omnibus package delayed the deadlines and raised the thresholds of the CSRD, taking most mid-sized companies out of the direct obligation. This article explains the situation updated to 2026 and how to prepare for the demands that will still reach you through the supply chain.

What is the CSRD and who does it oblige after the Omnibus?

The CSRD is the European rule that replaced and expanded the old Non-Financial Reporting Directive (NFRD). Its aim is for companies to report on their ESG performance in a uniform, verifiable and comparable way, using the European Sustainability Reporting Standards (ESRS).

In its original design, the CSRD was going to reach around 50,000 companies in the EU. However, the Omnibus Directive (Directive (EU) 2026/470), published in the Official Journal of the EU on 26 February 2026 and in force since 18 March 2026, drastically reduced that scope. As of 2026, the situation is as follows:

• New direct-obligation threshold: only large companies with more than 1,000 employees and more than 450 million euros in annual net turnover remain subject.
• New timetable: these companies will report on financial years starting on or after 1 January 2027, with the first reports in 2028.
• Fewer companies in scope: the Commission estimates that the Omnibus removes around 80% of the companies that were previously going to be obliged from the CSRD.

The principle that governs the whole rule remains double materiality, which is kept after the Omnibus. If you want the full detail of the reform, we develop it in our analysis of the EU Omnibus package.

The cascade effect: why the CSRD affects you even if you do not report

What is the cascade effect?

The cascade effect happens when the reporting obligations of large companies are passed down to their suppliers and business partners. To report rigorously, an obliged company needs reliable data from those that make up its value chain.

The clearest case is Scope 3 emissions: if a construction or energy group must report the emissions of its entire value chain, it will need to know those generated by its suppliers of materials, transport and services. That is where SMEs supplying components, managing waste or providing ancillary services come in.

The VSME cap: what they can and cannot ask of you

The Omnibus introduced an important safeguard to stop SMEs being crushed by their clients' data requests. Companies reporting under the CSRD cannot require a company in their value chain with fewer than 1,000 employees to provide more information than that set out in the voluntary standard for SMEs, the VSME (Voluntary SME standard).

In practice this means two things:

• As a supplier SME, you have the right to limit your answers to the content of the VSME.
• But the VSME does include basic ESG data (energy consumption, emissions, headcount, etc.), so you will still have to measure and provide information. The cascade effect does not disappear: it is brought into order.

What data your clients will ask of you

To comply with the ESRS, obliged companies collect information from their suppliers. Among the most common data they may request (within the VSME framework if you are an SME) are:

• Greenhouse gas (GHG) emissions: direct, from fuel consumption, and indirect, from energy or transport.
• Resource consumption: electricity, water, raw materials and packaging.
• Waste management: quantities generated, treatment and recycling.
• Social and labour policies: equality, occupational safety, training and diversity.
• Ethical commitments: regulatory compliance, anti-corruption and respect for human rights.

Many large companies already integrate these requirements into their supplier evaluation systems. SMEs that are not prepared may lose points in tenders and sustainability audits.

How to prepare for the cascade effect

1. Measure your carbon footprint and environmental performance

The first step is to quantify your emissions and consumption. Build a carbon footprint inventory (Scopes 1, 2 and 3) and complete it with energy, water and waste data. Having these figures lets you respond quickly to your clients and demonstrate a verifiable commitment. To go deeper into Scope 3, see our guide to the 15 categories of Scope 3 in the GHG Protocol.

2. Embed sustainability into management

Sustainability cannot sit in isolation within communications. Bring ESG criteria into operational, financial and procurement management, with internal policies on energy efficiency, equality, occupational health and supplier control. This strengthens your position with clients looking for partners aligned with their climate goals.

3. Develop a basic reporting system

Even if you are not obliged to publish a CSRD report, set up a simple system that captures your main ESG indicators (annual factsheets, dashboards or internal reports). The VSME is a good reference for what to measure. Systematising this data lets you respond swiftly to audits and tenders.

4. Collaborate with clients and suppliers

Talk to your main clients to find out what data they will ask for and in what format, and in turn ask your own suppliers for information to complete your traceability. SMEs that adopt this collaborative dynamic integrate better into sustainable supply chains.

How the cascade effect plays out by sector

Construction and materials

Construction firms must report the environmental impact of the materials they use, from cement to steel. This leads them to ask their suppliers for environmental product declarations (EPDs) and life-cycle and per-product emissions information.

Transport and logistics

The sector quantifies the impact of goods transport, fuel consumption and fleet footprint, so it will ask for precise data on kilometres travelled, energy consumption and associated emissions.

Manufacturing

Manufacturers must measure the carbon footprint of their processes and demonstrate efficiency improvements. Industrial SMEs with environmental management systems or circular economy programmes start with an advantage.

Professional services and ICT

Service companies report their indirect emissions (offices, travel, suppliers). Tech firms and consultancies must evidence good social and governance practices to keep contracts with large corporates.

From obligation to value

Adapting early brings tangible benefits:

• Preferential access to tenders and B2B contracts: large groups prioritise suppliers with verifiable ESG data.
• Greater operational efficiency: measuring consumption and emissions reveals savings opportunities.
• Reputation and trust: transparency strengthens the brand with clients, banks and investors.
• Access to sustainable finance: projects with solid ESG data are more attractive for green financing.

Frequently asked questions about the CSRD for SMEs

Is my SME required to report under the CSRD?

After the Omnibus, almost certainly not: the direct obligation is limited to companies with more than 1,000 employees and more than 450 million euros in turnover. But if you work with large companies, you will have to provide them with ESG data so they can comply.

What data might I have to provide as an SME?

Mainly emissions (carbon footprint), resource consumption, social policies and environmental certifications. If you have fewer than 1,000 employees, your clients cannot ask you for more than what the voluntary VSME standard sets out.

When will they start asking me for data?

The large obliged companies report on financial years starting from 2027 (first reports in 2028), but data requests to suppliers are already being built into contracts and audits.

Does the Omnibus remove the cascade effect?

No. It limits it through the VSME cap, but large companies still need data from their value chain, especially for Scope 3. SMEs that measure and report will keep a competitive advantage.

If you want to get ahead of what your clients will ask for, at Manglai we help you calculate and report your carbon footprint with verifiable, audit-ready data.