“This standardised tool enables SMEs to achieve their objectives and is intended to meet the needs of the market and ensure the market acceptance of the standards.”

Elisa Bevilacqua, Sustainability Senior Technical Manager at EFRAG on November 28, 2023

 

Background and Development

In their meeting on 08 November 2023, the EFRAG Sustainability Reporting Technical Expert Group (EFRAG SR TEG) approved the Voluntary European Sustainability Reporting Standards for non-listed Small- and Medium-Sized Enterprises – Exposure Draft (VSME ESRS ED or Standards). They may offer benefits to the target group, i.e. non-listed Small and Medium Enterprises (SMEs) that are not subject to the mandatory reporting according to the EU Corporate Sustainability Reporting Directive (CSRD). The VSME ESRS ED serves as an early-stage proposal for a potential EFRAG position, released to allow public insight into ongoing discussions.

 

Voluntary ESRS for SMEs

The VSME ESRS ED is intended to provide voluntary guidance on the preparation and communication of sustainability information to interested parties. While the VSME ESRS ED covers the same range of sustainability issues as the (mandatory) ESRS for larger companies, they differ in that they emphasise proportionality and adapt their requirements to the specific characteristics and size of smaller or medium-sized unlisted companies.

Modules for Sustainability Reporting

The VSME ESRS ED provides three modules that companies can use for their sustainability reporting, as well as detailed information on the respective disclosures, namely the:

  • Basic Module (entry level for SMEs, targeting micro-undertakings),
  • Narrative-Policies, Actions and Targets (Narrative-PAT) Module (targeting SMEs that already have PAT in place and to report), and
  • Business Partners Module (for SMEs that need to respond to queries from their business partners).

The VSME ESRS ED leaves it to the SME, whether they want to use the Narrative-PAT Module and/or the Business Partners Module on top of the Basic Module. Once a module has been selected, it must be fully complied with, taking into account materiality considerations in the Narrative-PAT and Business Partners Modules. SMEs are thus well advised to carefully assess which module(s) are best suited for them.

Principles of Sustainability Reporting

The VSME ESRS ED contains a set of principles that an undertaking should follow in preparing its sustainability report. These principles apply regardless of which module the SMEs use:

  • Compliance with the Standards:
  • Reporting on the negative or positive impacts of the business on people and the environment, and how social and environmental issues affect the financial position, performance, and cash flow.
  • Ensuring that the sustainability report is relevant, faithful, comparable, understandable, and verifiable.
  • Including additional information relevant to the undertaking’s activities and sector to enhance the quality of the report.
  • Timing and Location:
  • Preparing the report annually, aligned with financial statements.
  • Presenting the sustainability report in the management report or in a separate document, to avoid duplication of information.
  • Classified Information: Omitting sensitive or classified information that could harm the undertaking’s financial status or has commercial value.

Benefits of the Standards

Overall, the VSME ESRS ED could provide significant benefits to SMEs:

  • The Standards allow SMEs to simply start their sustainability journey and monitor their sustainable practices, hence increasing their competitiveness and access to sustainable finance.
  • They align SMEs’ reporting with the ESRS, thereby enhancing the credibility and transparency of the SMEs. Reporting to the Standards also positions the SMEs for a seamless transition to the CSRD reporting standards as they grow and scale up.
  • As the Standards are specifically tailored to the needs of SMEs, they offer a choice of sustainability reporting modules to suit the size and capabilities of SMEs. For instance, reporting in accordance with the Business Partners Module could help SMEs easily face the requests from their business counterparts, who are also managing their sustainability matters along their supply chain.
  • By adopting the Standards, SMEs can demonstrate their commitment to sustainability, which is increasingly important to consumers, investors, and business partners. This could potentially increase the SMEs’ market access.

For more information, the VSME ESRS ED is available at: https://efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FMeeting%20Documents%2F2305101045339288%2F03-02%20EFRAG%20SR%20TEG%20231108%20VSME%20ESRS%20ED%20clean.pdf