"ESG" (environmental, social and governance) has moved from a buzzword to a set of real legal and commercial pressures. Most of the mandatory ESG reporting rules in the UK are aimed at large companies, so smaller businesses often have few direct legal obligations. But SMEs are increasingly affected indirectly, through supply chains, lenders and customers. Here is a practical overview for England and Wales in 2026.
Most mandatory ESG reporting targets large companies
The main UK ESG reporting regimes apply by size or sector, and typically catch large companies, not SMEs:
- Streamlined Energy and Carbon Reporting (SECR) requires large companies (and quoted companies) to report energy use and carbon emissions in their annual reports.
- Climate-related financial disclosures (in line with the TCFD framework) are mandatory for larger companies and certain financial entities.
- The FCA's Sustainability Disclosure Requirements (SDR) and anti-greenwashing rules apply to FCA-regulated firms and certain investment products.
- Modern slavery statements are required of commercial organisations with turnover at or above the statutory threshold (currently £36 million) under the Modern Slavery Act 2015.
- Large companies also face non-financial and sustainability reporting duties in their annual reports under company law.
If your business is below these thresholds, you likely have no direct duty under these specific regimes.
How SMEs are affected indirectly
Even without direct obligations, SMEs feel ESG pressure through:
- Supply chains. Large customers must report on their own ESG performance and increasingly ask suppliers for emissions data, modern-slavery assurances and policies. Being ESG-ready can win and keep contracts.
- Lenders and investors. Banks and investors may ask about ESG risks as part of lending or funding decisions.
- Procurement. Public-sector and large-corporate tenders often include ESG criteria.
- Reputation and recruitment. Customers and employees increasingly care about a business's environmental and social record.
Universal duties that already apply
Some ESG-adjacent obligations apply regardless of size, including health and safety, employment and equality law, data protection, environmental rules (waste, packaging) and consumer-protection rules against misleading "green" claims (greenwashing).
Practical steps for SMEs
- Identify which (if any) mandatory regimes apply to you by size and sector.
- Be ready to answer customers' and lenders' ESG questions, measure basic energy/emissions data and have simple policies.
- Avoid greenwashing: only make environmental claims you can substantiate.
- Keep an eye on changing rules, ESG regulation is expanding, and thresholds and requirements evolve.
Key takeaways
- Most mandatory ESG reporting (SECR, climate disclosures, SDR, modern slavery) targets large companies, many SMEs have no direct duty.
- SMEs are affected indirectly via supply chains, lenders, procurement and reputation.
- Universal duties (health and safety, employment, data protection, environment, anti-greenwashing) apply regardless of size.
- Being ESG-ready is increasingly a commercial necessity, even where it is not a legal one.
Sources
- Streamlined Energy and Carbon Reporting (SECR) and company-law non-financial reporting requirements
- Modern Slavery Act 2015, section 54 (transparency in supply chains; £36m threshold)
- FCA Sustainability Disclosure Requirements and anti-greenwashing rules; consumer-protection rules on misleading environmental claims
--- This article is general information about the law of England & Wales as at 2026, not legal advice. ESG rules are evolving and thresholds change, for advice on your circumstances, consult a qualified solicitor.