The sustainability reporting revolution arrives
Consultations on the UK’s new Sustainability Disclosure Requirements standards began in Q1 2025, with implementation from January 2026. While immediate requirements affect primarily larger companies, the implications cascade rapidly through supply chains to affect SMEs of all sizes.
Understanding the expanding scope
From 2026 onwards, the UK will begin phasing in mandatory climate-related financial disclosures under the UK Sustainability Reporting Standards, grounded in the global International Sustainability Standards Board framework. During 2025, both the government and the FCA are expected to consult on requirements to disclose against the UK SRS for “economically significant” and listed companies respectively.
For listed SMEs, the timeline is clear: listed SMEs are required to comply with ESG reporting from January 2026, though they can postpone reporting for another two years, meaning that as a listed SME in the EU, you must start reporting by 2028.
Why unlisted SMEs must pay attention
Even if you’re not directly subject to mandatory reporting, the reality is unavoidable: whilst new and emerging ESG legislation will impact directly on larger corporate entities, those SMEs and smaller organisations in their supply chain will be indirectly affected, creating requests to SMEs for information on their environmental impact, social policies, and governance processes.
Non-EU entities with significant EU activity over €150 million turnover within the EU, such as a substantial EU subsidiary or EU branch, will be impacted from 2026. UK businesses with European operations or customers may find themselves captured by EU requirements even without direct UK obligations.
The supply chain ripple effect
Your largest customers are preparing for their own reporting requirements. They will need data from their supply chains – including you – to complete their disclosures. Being unable to provide this information could cost you valuable contracts.
The creation and use of sustainability-related information will enable SMEs to better manage their opportunities and risks, thereby strengthening their financial position and facilitating easier access to investment and more favourable trade terms with suppliers. This isn’t just compliance – it’s competitive advantage.
What ESG reporting actually involves
The “E” includes environmental matters such as climate change, energy use and energy efficiency, pollution, biodiversity and resource scarcity; the “S” looks at areas such as social, community and human rights issues, modern slavery, diversity, equity and inclusion, stakeholder and employee engagement, and gender pay gaps; and the “G” covers topics such as bribery, corruption, executive pay, board diversity and anti-money laundering, as well as cyber and data security.
CSRD reporting goes beyond just climate reporting, requiring a double materiality approach, with value chain consideration being a crucial part of the directive, and limited assurance of ESG reporting mandatory from the first year of application. This is comprehensive, rigorous reporting requiring proper systems and processes.
Starting your ESG journey in 2025
According to the Capterra UK Survey, 48% of British SMEs pursuing environmental, social, and governance goals don’t know where and how to start. You’re not alone – but waiting for perfect clarity is a mistake. Here’s how to begin:
Conduct a materiality assessment. The company needs to narrow down the ESG concerns most relevant to itself, its stakeholders, and mandatory requirements, with industry performance benchmarks helping identify key reporting areas. Not every ESG factor matters equally to your business – focus on what’s material.
Start measuring what matters. You can’t report what you don’t measure. Begin collecting data on energy consumption, waste generation, employee metrics, and governance processes. Even basic tracking now makes formal reporting later vastly easier.
Review your existing compliance. Small and medium-sized businesses with fewer than 500 employees and less than £500 million annual turnover are not subject to most climate-related disclosures and ESG regulations currently. However, many requirements already apply – review your position against existing obligations like Modern Slavery Act reporting or gender pay gap reporting if applicable.
Engage your supply chain. Start requesting ESG information from your key suppliers now. This serves dual purposes: gathering data you may need for your own reporting whilst also signalling to suppliers that ESG matters to your business relationships.
Consider voluntary frameworks. The GRI standards create a framework all businesses can use to identify and assess their impact, as well as to determine the material topics most relevant to the company. Early adoption of voluntary frameworks demonstrates commitment whilst building reporting capability.
The business case beyond compliance
Integrating the UK SRS into your business enables you to embed sustainability into corporate strategy, improve internal risk management, uncover efficiencies, spark innovation, and boost resilience, future-proofing your business and driving measurable ESG performance.
Companies that excel at ESG reporting attract better talent, win more contracts, and access capital on better terms. This is about building business value, not just ticking boxes.
Getting strategic support
At FMY Chartered Accountants, we’re helping clients across sectors prepare for ESG reporting requirements through materiality assessments, system implementation, and reporting strategy development. Our approach integrates ESG considerations with existing financial reporting to create efficient, cost-effective compliance whilst identifying genuine business improvement opportunities. The 2026 requirements may seem distant, but building robust ESG systems takes 12-18 months. Starting now positions you for success rather than scrambling later.
Contact FMY Accountants today at info@fmyaccountants.co.uk for tailored advice and a personalised plan for your business.