The European Financial Reporting Advisory Group (EFRAG) has introduced a voluntary sustainability reporting standard designed for non-listed SMEs, facilitating easier and more consistent ESG reporting for smaller enterprises. This initiative aims to support businesses that are not directly subject to the Corporate Sustainability Reporting Directive (CSRD) but are increasingly required to provide sustainability-related information. The initiative is a significant step in the EU’s broader strategy to enhance transparency and uniformity in sustainability reporting across all levels of business.
In December 2024, EFRAG announced the release of this new standard, which is part of its ongoing effort to address the demands for ESG and climate data from larger companies and financial institutions. Previously, the group released an exposure draft in January 2024, inviting feedback to refine and simplify the standard. Many SMEs reported challenges with the materiality analysis in the initial draft, prompting EFRAG to replace it with an ‘if applicable’ principle to reduce the complexity and cost of compliance. This approach responds to the concerns raised by banks and investors regarding the reliability of previous materiality analyses conducted by SMEs.
What Does the New Standard Entail?
The newly published standard introduces key simplifications, making ESG reporting more accessible for SMEs. By adopting the ‘if applicable’ principle, EFRAG aims to align SME sustainability disclosures with ESG topics under the ESRS without the burdensome materiality assessment. This change is intended to streamline the process and address the apprehensions from the financial sector about data reliability.
How Will EFRAG Support SMEs?
EFRAG has outlined its plans to support the implementation of the VSME standard through various initiatives in 2025. These include providing educational materials, organizing awareness events, and developing online tools to help SMEs adapt to the new reporting requirements. These efforts aim to minimize the reporting burden on SMEs and open up opportunities for green financing.
The introduction of the VSME standard is a response to the growing necessity for uniform sustainability reporting in the EU. Historically, SMEs have faced multiple, often inconsistent ESG information requests – a challenge this standard seeks to address. Previously, the complex materiality assessments were seen as a barrier, prompting this evolution towards a more straightforward reporting mechanism.
In a statement, Patrick de Cambourg, Chair of the EFRAG SRB, emphasized the group’s dedication to supporting a sustainable economy. He highlighted the dual benefits of the VSME standard in reducing the data request burden on SMEs and providing new opportunities for business and financial growth. VSME is a strategic tool, offering simplified yet effective data collection that can drive decision-making and enhance business insights for SMEs.
This development serves as an essential mechanism for improving sustainability reporting among non-listed SMEs, potentially leveling the playing field with their larger counterparts. While the immediate impact of these standards remains to be seen, EFRAG’s plan to support their implementation in 2025 demonstrates a commitment to ensuring SMEs can meet evolving ESG demands. It is crucial for SMEs to engage with these new tools and resources to position themselves strategically in a marketplace that increasingly values sustainability and transparency.
