How confusion surrounding the CSRD and the EUDR affects SMEs

For some time, I have been conducting a series of trainings dedicated to ESG topics, approaching this area from a legal and, more broadly, business perspective. Polish entrepreneurs – my main audience – are often genuinely interested in running their businesses in line with the principles of sustainable development. They are well aware that this is what EU and international markets expect of them. And although the decision to focus more strongly on improving a company’s sustainable impact is often driven by pressure from contractors or the desire to gain advantages linked to proving ESG-related actions, most companies ultimately recognise the real benefits of carrying out a kind of green revolution.

Legal obligations vs. voluntary ESG commitments
However, taking part in this transformation requires numerous internal changes. A mature approach to ESG demands a clear understanding of which requirements stem directly from binding legislation and which are merely voluntary – yet potentially crucial for maintaining competitiveness on the market.

It turns out that building such awareness is extremely challenging. As I mentioned, I lead a series of ESG-focused trainings. Yet once again, I find that the materials I prepare become outdated very quickly. This results from recent perturbations and unexpected “plot twists” at the EU legislative level concerning the Corporate Sustainability Reporting Directive (CSRD) – and more recently, the Regulation on Deforestation-free Products (EUDR). My goal here is to present the perspective of smaller enterprises – mainly SMEs – for whom keeping up with legal changes (and especially with shifts in the overall direction Europe is heading) is significantly harder than it is for large multinational corporations.

CSRD: from broad coverage to narrowed obligations
The discussion on changes to sustainability reporting has now lasted nearly a year. After numerous informal announcements, in February 2025 the European Commission proposed a significant limitation of reporting obligations – to ultimately cover only companies employing more than 1,000 workers, either individually or within a corporate group. Additionally, it proposed a two-year postponement (until 2028) of reporting requirements for companies currently covered by CSRD, which were originally required to report starting from 2026 or 2027.

Meanwhile, 2025 is the year when many companies began preparing procedures, principles, and tools for sustainability reporting (including SMEs that had learned from their contractors about the need to provide specific data). Just as the machinery for effective data collection was set in motion, reporting obligations were postponed by two years.

What’s more, a number of further simplifications have been proposed – including limiting the obligation only to companies employing at least 1,000 workers. Yet months have passed, and the EU still lacks consensus on what direction ESG reporting obligations should take.

Uncertain ESG rules: strategic paralysis for SMEs
How does this uncertain legislative situation surrounding ESG affect SMEs? In theory, it seems clear that they will not be directly subject to the new rules. However, this does not mean that the scope of information required under the reporting framework will not indirectly affect companies not covered by the legislation. Obviously, entities subject to reporting will continue to seek data from their business partners – even if this is not explicitly required by law. First, because they are already doing so, and second, because ensuring data reliability and accuracy will require it. For this reason, smaller entities are also closely following developments in ESG regulation.

For these companies, the lack of clarity in the legislation prevents strategic planning and creates additional administrative costs. Of course, these are not costs of the same magnitude as those borne by large corporations that, for example, must establish separate ESG departments or purchase costly software. But they are still meaningful – involving the preparation and maintenance of documentation, employee involvement in data collection, and communication with partners. How, then, can a company consciously plan its strategy and budget for ESG engagement when for nearly a year EU policymakers have been unable to define the direction business should take? Not to mention the negative impact this uncertainty has on smaller firms’ overall motivation to pursue sustainable business models – even though, under a properly designed legal framework, they could draw inspiration from larger, regulated entities.

EUDR: another regulation at a crossroads
The EUDR faces a similar crossroads. Adopted in 2023, it aims to reduce the EU’s contribution to global deforestation. Initially, the regulation was to apply from the end of 2024. However, in December 2024 the EU granted an additional 12-month transition period, pushing the start date to 30 December 2025 for large and medium-sized companies and 30 June 2026 for micro- and small enterprises.

In October 2025, the European Commission submitted to the European Parliament documents proposing amendments to the EUDR. As with CSRD, the proposed changes concern the limitation of reporting obligations (due-diligence statements), simplifications for SMEs, and further deferrals of implementation dates. The year is almost over, and we are in the midst of a storm in the European Parliament over the changes proposed by the European Commission. At the same time, the Danish EU Presidency is putting forward its own ideas for regulating the EUDR. It looks like we will be seeing political discussions and attempts by various lobbies to influence the shape of the EUDR regulations until the end of December. Time is running out, and entrepreneurs are increasingly confused about how to plan their work and operations after December 30, 2025…   

In the case of EUDR, the impact of regulatory changes on smaller entities is even more visible. According to current assumptions, the regulation will directly involve SMEs and impose obligations on them. It is worth noting that before the Commission’s October announcement about potential changes, SMEs were already expected to comply by June 2025. From my experience, many of these companies had already begun preparing – for example, by preliminarily verifying their suppliers or renegotiating contracts. Now, once again, it is difficult to predict what the final, correct course of action will be.

Who really bears the cost of legislative confusion?
To sum up, the legislative confusion created by EU institutions may, in fact, affect small and medium-sized enterprises even more severely than large corporations. Bigger market players, in order to maintain their position, tend to focus mainly on market expectations, treating legal compliance as a natural cost of doing business. For smaller entities, however, both regulatory obligations and market pressure present real challenges. While simplifications may indeed relieve some of the burden, they will likely come at the cost of many months – if not years – of preparation that, in the end, may prove wasted.