Are SME Boards Equipped for the Carbon Neutrality Journey?

Minna Pylkäs
June 6, 2025

SME Boards on the Path to Carbon Neutrality – Are They Ready?

The importance of corporate responsibility is growing due to global challenges such as climate change, wars, biodiversity loss, and societal shifts. Since 2024, all listed and large companies have been obligated to publish sustainability reports, driven by the EU’s Corporate Sustainability Reporting Directive (CSRD). While the directive does not directly apply to SMEs, it affects them indirectly through value and supply chains.

How prepared are Finnish SME boards for climate goals and the sustainability transition? This topic was explored in a thesis completed at Vaasa University of Applied Sciences in autumn 2024, which examined the capacity of company boards to make decisions related to carbon neutrality. The mixed-method study targeted SME board members with strategic decision-making roles. The aim was to understand board attitudes, challenges, and support needs related to the topic.

The results showed that carbon neutrality is considered a difficult subject in boardrooms. For many SMEs, it’s still unfamiliar. Inexperience leads to cautious and passive decision-making. The topic typically arises only when owners or stakeholders demand it—otherwise, it is overshadowed by other business priorities. Updating strategies with sustainability in mind is rarely a priority without external pressure.

Five obstacles emerged as key barriers to decision-making:

Lack of benchmarking data – such as data on supply chains, materials, or implementation options
Unclear or invisible benefits
Lack of market analysis
Lack of ideas – especially when it comes to developing new business models or improving existing processes
Lack of resources – including skilled personnel

Due to these challenges, many SME management board members feel they lack a clear understanding of what carbon neutrality means for their specific business. These factors form a loop that SME boards could help break.

Figure: A vicious cycle resulting from governance challenges

Ensuring Business Continuity and Competitiveness

The study concludes that SME boards must start the discussion, support critical thinking, and define strategies to help companies thrive in the future. This means shifting from reactive to proactive governance and acknowledging that real change takes time.

Boards can support continuity by strengthening expertise and securing resources—both financial and expert-based. Practical steps include assessing the current business state and analysing relevant data. These help identify strengths, areas for improvement, and priorities for strategic renewal. Well-chosen metrics and follow-up ensure progress and provide insight into the company’s position in its operating environment.

More Time to Prepare for SMEs – But No Time to Wait

A key regulatory shift currently relevant also for SME boards is the EU’s proposed Omnibus Directive, which introduces extended reporting deadlines under the Corporate Sustainability Reporting Directive (CSRD) for large companies and proposes revised thresholds for company size classification. If adopted as planned, the Omnibus could give SMEs more flexibility to align their business with sustainability goals without facing an immediate regulatory burden, allowing boards to proactively build their knowledge and develop suitable governance models. However, stakeholders such as customers, investors, and financiers may still expect sustainability information well before formal requirements come into force.

The EU’s voluntary sustainability reporting standard (VSME) can be an effective platform for SMEs that want to progress toward carbon neutrality in a structured way. The VSME standard provides a reference framework that enables experimentation and learning without mandatory regulation – helping businesses adapt early to future reporting obligations.

In conclusion, SME boards and leadership should begin evaluating the importance of sustainability for competitiveness, what risks and opportunities exist, and how different approaches might create impact. They should also consider how important sustainability is to customers and stakeholders— or at the very least, should the company take steps to prepare and safeguard its position in a changing business environment.

This article is written by Minna Pylkäs, whose 2024 thesis at Vaasa University of Applied Sciences looked into how company boards approach decision-making on the path to carbon neutrality. Her findings offer practical insight into the challenges and opportunities boards face in the sustainability transition.