A Practical Guide for UK SMEs

New sustainability regulations are changing the way businesses operate in the UK. If you're an SME supplying to larger companies, you may already be feeling the pressure to provide detailed environmental and social data. This is largely due to new EU regulations – the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

While these rules are aimed at large companies, they also have significant implications for UK SMEs in the supply chain. Understanding what Scope 3 emissions, CSRD, and CSDDD compliance mean for your business will help you to stay competitive and hold on to valuable contracts. In this guide, we break down what you need to know and offer practical steps to help your business navigate these new requirements.

Understanding Scope 3 Emissions

Scope 3 emissions are indirect emissions occurring throughout the value chain, including suppliers and customers. These emissions are often the most challenging to calculate but are required for comprehensive carbon reporting.

Examples of Scope 3 Emissions:

Business travel and employee commuting
Purchased goods and services
Waste disposal and recycling

Learn more about calculating Scope 3 emissions from the GHG Protocol.

What is the CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a new EU regulation that significantly expands sustainability reporting requirements for companies operating in Europe. It builds on the existing Non-Financial Reporting Directive (NFRD) but introduces stricter standards and affects a much larger group of companies.

While the CSRD directly applies to large EU companies, it also impacts UK SMEs that are part of their supply chains. This is because larger companies will require more detailed sustainability data from their suppliers to comply with the new rules.

Who Needs to Report Under CSRD?

The CSRD requires different types of companies to report specific sustainability information. Here's a breakdown of who needs to report and what they need to disclose:

Type of Company	Criteria	Reporting Requirements
Large EU Companies	Meet 2 of the following: €40M+ turnover €20M+ balance sheet 250+ employees	Detailed ESG data Scope 1, 2, and 3 emissions Human rights impacts Governance and risk management practices
Non-EU Companies with EU Operations	Annual EU turnover of €150M+ At least one EU subsidiary or branch	Same as large EU companies Must report at the EU group level
SMEs Listed on EU Regulated Markets	Small and medium enterprises listed on regulated EU stock exchanges	Simplified reporting standards Scope 1 and 2 emissions Basic ESG disclosures
UK SMEs in Supply Chains	Not directly required to report, but indirectly impacted if supplying to companies needing CSRD compliance	May be asked for Scope 3 emissions data Information on human rights and environmental policies

Key Points to Note:

Scope of Reporting: CSRD covers a broad range of sustainability issues, including environmental impact, social responsibility, human rights, governance practices, and risk management.
Double Materiality: Companies must report on how sustainability issues affect their business and how their operations impact people and the environment.
Reporting Standards: Companies must follow the European Sustainability Reporting Standards (ESRS), ensuring consistent and comparable disclosures.
Digital Format: Reports must be published in a digital format using the European Single Electronic Format (ESEF), making the data easily accessible and transparent.

What is the CSDDD?

The **Corporate Sustainability Due Diligence Directive (CSDDD)** focuses on human rights and environmental impacts in supply chains. It requires companies to identify, mitigate, and report risks related to:
Human rights abuses (e.g., forced labor, child labor)
**Environmental harm** (e.g., pollution, biodiversity loss)

UK SMEs supplying larger companies may need to provide evidence of ethical sourcing and environmental compliance.

How Do CSRD and CSDDD Impact UK SMEs?

Although CSRD and CSDDD target large companies, UK SMEs within the supply chain must comply with data requests to maintain contracts and grow their business. These companies will likely request detailed sustainability data, including Scope 3 emissions and information on human rights and environmental practices.

Benefits Include:

Enhanced credibility: Meeting sustainability criteria can improve brand reputation.
Competitive advantage: SMEs compliant with ESG standards are more attractive to large buyers.
Risk management: Proactive compliance reduces business risk and future-proofs operations.

Practical Steps for UK SMEs to Get Started

Understand Your Impact: Map your supply chain to identify environmental and social risks.
Measure Scope 3 Emissions: Use tools like Carbon Trust or ask for our support.
Implement Due Diligence: Assess and manage risks related to human rights and the environment.
Communicate Transparently: Prepare clear sustainability reports to meet client and regulatory requirements.

If you are looking for support with any of the above, then please get in touch.

Conclusion

UK SMEs must prepare for the ripple effects of CSRD, Scope 3, and CSDDD. Taking proactive steps will not only ensure compliance but also enhance competitiveness and resilience. Need help getting started? Contact us for expert advice on ESG compliance and sustainability strategy.

Scope 3 Emissions, CSRD & CSDDD Explained