In 2025, sustainability will move firmly from a voluntary initiative to a regulatory or supply-chain obligation. With the introduction of standards such as IFRS S1, IFRS S2, and the European Union’s Corporate Sustainability Reporting Directive (CSRD), small and medium-sized enterprises (SMEs) are increasingly expected to meet rigorous disclosure requirements alongside larger corporations. This shift is largely driven by growing concerns over greenhouse gas emissions and the need for greater transparency around emission sources.
A SME owner holds a seedling. AI generated picture
For SMEs operating across the UK and EU, these developments present both challenges and opportunities. New compliance demands require action—from environmentally-related financial disclosures to value-chain transparency—but those who respond early stand to strengthen their market positioning, resilience, and brand reputation.
The average carbon footprint of an SME varies based on location and type of business. UK SMEs emit on average 15 tonnes of CO₂ annually (1–6 tonnes per employee), while EU SMEs average 75 tonnes. Though far below large firms (~22,345 tonnes), SMEs collectively contribute 63% of EU business emissions due to the large number of SMEs, highlighting the importance of SMEs taking action on their impact.
Rather than viewing sustainability reporting as a burden, proactive SMEs are beginning to see it as a strategic investment—one that can unlock access to new markets, forge stronger partnerships, and future-proof operations. Therefore, understanding your SME’s environmental impact and how to reduce your SME’s emissions is the first step to becoming more sustainable and unlocking opportunities, turning compliance into a competitive advantage.
In this article, we will outline the key regulatory changes SMEs need to prepare for, explain how SME carbon footprint measurement can simplify compliance, and showcase examples of SMEs successfully integrating sustainability into their business strategies. We will explore the emissions audit process, tools to assess your environmental performance, and methods to build a comprehensive carbon footprint baseline.
The regulatory wake-up call: Why SME carbon footprint reporting cannot wait
The business landscape for SMEs is undergoing a fundamental shift. Where sustainability reporting was once a voluntary or investor-driven exercise, it is now becoming a regulatory requirement—one that SMEs across the UK and EU can no longer afford to overlook.
At the heart of this transformation are two global standards developed by the International Sustainability Standards Board (ISSB):
- IFRS S1, which defines how companies should disclose sustainability-related financial information, integrating it into governance, strategy, risk management, and metrics.
- IFRS S2, which focuses specifically on environment-related disclosures, ensuring businesses assess and report their exposure to environmental risks and opportunities.
These frameworks aim to create a globally consistent approach to sustainability reporting, reducing fragmentation and enabling investors and stakeholders to better assess corporate resilience. In the UK, preparations are underway to implement the UK Sustainability Reporting Standards (UK SRS), closely aligned with IFRS principles.
Transportation and distribution will need to be measured under Scope 3. AI generated image
Meanwhile, the Corporate Sustainability Reporting Directive (CSRD) in the European Union is reshaping the regulatory environment by embedding sustainability expectations directly into law. While the directive’s initial focus is on large corporations, its reach extends well beyond—bringing many SMEs into scope either directly or through their role in larger supply chains. This means chain activities and chain partners must now be evaluated through the lens of supply chain resilience and emissions from sources owned or controlled indirectly.
Download DGB’s CSRD Brochure to get the full picture
Under the CSRD, thousands of companies will be required to report detailed information about their environmental, social, and governance (ESG) impacts using standardised frameworks. This reporting will cover a wide range of sustainability metrics, including resource use, pollution, biodiversity, social responsibility, and—critically—emissions across Scope 1 (direct emissions), Scope 2 (energy-related emissions), and Scope 3 (value chain emissions). The intention is to create greater transparency, comparability, and accountability across European markets.
For listed SMEs, the timeline is now set. They are mandated to begin reporting in 2027 for the 2026 financial year, although they are granted an optional two-year deferral. These requirements apply to listed EU-based SMEs, excluding micro undertakings, that meet at least two of the following three thresholds:
– 50 or more employees
– €8 million or more in net turnover
– €4 million or more in total assets
Although non-listed SMEs are not legally required to comply, the European Commission has proposed a set of voluntary sustainability reporting standards tailored to smaller businesses. This creates an opportunity for forward-thinking SMEs to get ahead of market expectations and begin aligning their practices before obligations become widespread.
Even for those not directly reporting under the CSRD, the ripple effects are considerable. Larger corporations subject to the directive are now required to scrutinise the sustainability performance of their suppliers. This means SMEs that wish to retain contracts, access finance, or enter new markets will increasingly be asked to provide verifiable sustainability data—including carbon footprints and emissions reduction strategies. Carbon footprint initiatives, including green supply chain management, help SMEs align with sustainability criteria and meet top-tier suppliers' expectations.
In short, the CSRD is setting a new baseline for doing business in Europe. Preparing now is not simply about meeting compliance deadlines; it is about maintaining market access, preserving competitiveness, and positioning for growth in an economy that is rapidly aligning around sustainability principles. Part of an effective approach to how SMEs can reduce emissions includes optimising energy efficiency, using renewable energy, and integrating reduction and carbon compensation opportunities into their core business strategy.
Read more: Aligning with CSRD: the smart move for future-proofing your business
More than 25,000 companies worldwide now disclose their environmental impact, with 73% of all companies reporting their Scope 1 and 2 emissions and over half reporting some Scope 3 emissions across their value chain. These numbers will only increase, reflecting the global trend and demand for transparent emissions reporting.
The message is clear: sustainability reporting is moving from best practice to baseline requirement. SMEs that delay preparation face a range of risks, from financial penalties to exclusion from critical supply chains and reputational setbacks that can affect long-term growth.
At the same time, early movers have a distinct opportunity to strengthen their credibility, attract investment, and position themselves as partners of choice for larger corporations increasingly accountable for the sustainability of their entire value chains. In this environment, sustainability is no longer a side project—it is becoming a fundamental component of business resilience and future success.
Read more: Overcoming sustainability challenges: practical solutions for your business
From compliance to competitive edge: SME sustainability strategies that drive growth
For many SMEs, the first instinct when facing new sustainability regulations is to treat them as a compliance burden—something to be managed, avoided, or postponed. But this approach risks missing a critical opportunity. As sustainability becomes embedded in how markets function, the companies that respond early and strategically are the ones best positioned to thrive. Those that adopt a strong green strategy and align with science-based targets can gain a significant competitive edge in their industries.
Studies show that SMEs are increasingly embracing a diverse set of sustainability practices that span strategic, operational, and cultural dimensions. Research highlights three major areas of focus:
- green workforce development and human resource practices;
- the integration of green innovation, circular economy models, and sustainability-driven business strategies; and
- concrete efforts to reduce carbon footprints through emissions tracking, carbon performance management, and targeted reduction initiatives.
These shifts are not abstract. Across sectors, SMEs are implementing energy-efficient operations, eco-friendly waste reduction and recycling practices, green supply chain models, and environmentally responsible office protocols. Together, these efforts reflect a broader transformation—one where sustainability is becoming central to how SMEs create value, compete, and contribute to long-term environmental goals.
Our CO₂ Expert tool helps SME to achieve their sustainability goals.
A practical starting point is measurement. Understanding your SMEs carbon footprint—across Scopes 1, 2, and 3—provides the foundation for informed decision-making, credible reporting, and long-term reduction strategies. It also enables SMEs to respond confidently to investor inquiries, customer expectations, and supplier requirements. With today’s digital tools, carbon accounting is no longer the exclusive domain of large corporations. Platforms such as DGB Group’s CO₂ Expert tool make SME carbon reporting tools and SME sustainability reporting more accessible than ever.
Read more: Carbon footprint measurement: a practical guide
Early adoption of sustainability practices offers more than regulatory peace of mind. SMEs that invest now can improve internal efficiencies, reduce operational costs, and access new sources of funding that prioritise ESG performance. Moreover, a documented sustainability approach increases attractiveness to larger partners—many of whom are under growing pressure to vet the environmental performance of their suppliers. In competitive procurement processes, demonstrating transparent emissions data and reduction plans can serve as a clear differentiator.
Just as important is the reputational advantage. As customers and employees become more sustainability-conscious, businesses with credible environmental practices are gaining trust, loyalty, and long-term value. In this sense, regulatory alignment becomes a platform for broader brand growth—not just a defensive strategy, but a forward-looking one. SMEs with a strong approach to sustainability are more likely to attract top-tier suppliers, reduce energy consumption, and benefit from enhanced reporting capabilities.
Studies show that 87% of consumers prefer sustainable brands. Sustainable companies see better operational performance, lower capital costs, and 20% higher valuations. They also experience 55% higher morale, 38% greater employee loyalty, and 16% increased productivity.
Ultimately, reframing sustainability regulations as a catalyst—not a constraint—is what separates reactive businesses from resilient ones. For SMEs, the shift begins with a simple but powerful step: measuring what matters.
Success stories — SMEs leading the sustainability race
Across the world, SMEs are not only adapting to evolving sustainability regulations but are also proactively driving environmental innovation. By embracing SME carbon footprint measurement and sustainable practices, these businesses are turning compliance into a competitive advantage. The following case studies from the Netherlands, Ireland, and Germany illustrate how SMEs are successfully integrating sustainability into their operations, achieving both environmental and economic benefits.
Read more: A pathway to sustainability for UK enterprises
Netherlands: Primal Soles – circular innovation in the footwear industry
Founded in Amsterdam, Primal Soles is redefining the footwear accessories market through circular economy principles. Its mission is to create 100% recyclable products that minimise waste and environmental impact.
An independent consultancy study has found that Primal Soles’ cork-based footwear actually achieves negative carbon emissions. Thanks to the carbon sequestration properties of cork oak forests and the sustainable harvesting methods employed, up to 8.2 kilograms of CO₂ can be captured per square metre—offsetting more emissions than are produced during manufacturing. In recognition of its environmental integrity, the company’s products have also been classified by the European Parliament as Green List Waste, meaning they can be recycled entirely at the source after use.
By focusing on sustainable procurement and materials that are fully biodegradable and recyclable, Primal Soles addresses two major sustainability challenges: sustainable supply and waste reduction. Its partnership with H&M's venture group further validates the business opportunity that lies in sustainable product innovation, positioning Primal Soles as a rising force in responsible consumer goods.
Read more: Dutch companies leading the charge in carbon footprint compensation
Ireland: Techrete – building a lower-carbon construction industry
Techrete, a leader in architectural precast concrete based in Ireland, has made sustainability a central pillar of its corporate social responsibility strategy, aiming to become net zero by 2030. Recognising the construction sector’s major role in global carbon emissions, Techrete has developed concrete products with up to 50% lower embodied carbon compared to traditional alternatives. These efforts align with science-based targets and show that a comprehensive carbon footprint baseline is achievable even in heavy industries.
Its initiatives go beyond product innovation. Techrete’s CSR framework focuses on reducing energy consumption across operations, responsible sourcing of raw materials, and promoting a culture of environmental stewardship among employees and partners. Supported by Enterprise Ireland, Techrete’s approach exemplifies how SMEs in traditionally high-impact industries can lead decarbonisation efforts, proving that sustainability and industry leadership are not mutually exclusive—they are deeply connected.
Read more: Irish companies driving positive environmental change
Germany: Traceless Materials – pioneering biodegradable plastic alternatives
Based in Hamburg, Traceless Materials is tackling the global plastics problem head-on with an innovative approach to material science. Founded on the belief that nature offers the solutions to its own challenges, Traceless develops fully biodegradable materials made from agricultural waste—offering a real alternative to conventional plastics without the environmental footprint.
But its environmental impact doesn’t stop at pollution reduction. To quantify its contribution, Traceless conducted a science-based lifecycle assessment—measuring its footprint from raw material sourcing to final disposal. This comprehensive emissions inventory included emissions from transportation and indirect emissions from its supply chain.
The results speak for themselves:
- Up to 95% fewer greenhouse gas emissions during production and disposal.
- An average of 2.59 tonnes of CO₂-equivalent emissions saved per tonne of material in these phases alone.
- Over the full lifecycle, greenhouse gas savings range from 26% to 76%, depending on the application—with a total average of 1.55 tonnes of CO₂-equivalent emissions saved per tonne produced.
Already working with brands like C&A to replace traditional plastic packaging, Traceless has demonstrated that SMEs can be powerful agents of change in the shift towards a more sustainable, circular economy. Its approach is a textbook example of how to implement sustainability across the entire product lifecycle.
Read more: Belgium’s leading firms in carbon compensation efforts
Leading in sustainability means leading tomorrow
The sustainability landscape for SMEs in 2025 is clear: transparency, accountability, and credible action are no longer optional. With frameworks such as IFRS S1, IFRS S2, and the CSRD reshaping regulatory expectations, SMEs across Europe must adapt not just to meet compliance demands, but to secure their competitive future.
As the examples of Primal Soles, Techrete, and Traceless Materials show, compliance is only the beginning. SMEs that invest early in carbon footprint measurement, reduction and compensation, and transparent reporting are not merely keeping pace—they are setting new standards within their industries, accessing new markets, and building more resilient businesses.
Whether you're designing new sustainable products or rethinking your existing operations, the path to meaningful impact starts with one essential step: measuring your footprint. Without a clear baseline, there’s no strategy, no credibility, and no progress—and that’s exactly where DGB Group comes in.
Get started: Use our free SME carbon calculator to measure your impact
Finding out what is an SME’s environmental impact doesn’t have to be complicated, or costly. At DGB, we offer a free SME carbon calculator designed to help small and medium-sized businesses take their first step towards sustainability. In just a few minutes, you can estimate your business’s environmental impact and uncover the emissions that matter most.
For companies ready to go deeper, we also provide advanced carbon reporting tools tailored to SMEs with specific needs or regulatory requirements. Whether you’re preparing for a sustainability reporting programme, building a foolproof environmental strategy, or simply curious about your impact, our tools scale to fit your goals and budget. Our carbon footprint analysis provides a clear carbon inventory based on emissions factor calculations. Plus, you have access to our experts to do a validated emissions audit.
You don’t need to wait for legislation pressures or consultants to take action. Start measuring your carbon footprint today—for free. Once you know where you stand, reducing your emissions becomes a far more achievable target. Let your sustainability journey begin with a clear baseline understanding and a data-driven reduction strategy.
At DGB, we are committed to making your SME carbon footprint journey accessible and actionable. Our CO₂ Expert tool and carbon footprint analysis services provide the precise insights companies need to navigate the evolving regulatory landscape, strengthen their market positioning, and contribute meaningfully to global environmental goals. In addition, we provide the insights and methods to reduce and compensate for your footprint effectively, with solutions that meet your needs and budget. Our approach to sustainability empowers you to address direct and indirect emissions, enhance your environmental performance, and meet sustainability reporting objectives with clarity.
In a market increasingly defined by sustainability leadership, SMEs that measure, manage, and communicate their impact today will be the ones who lead tomorrow.
Start measuring your footprint—and building your sustainable future—with DGB.
