What is the voluntary standard for SMEs?

A new voluntary sustainability reporting standard for non-listed small and medium-sized enterprises (SMEs) has been approved. This initiative aims to provide a simple and standardized framework for these companies to report on sustainability-related information. It's developed in response to the increasing demand for sustainability information from various stakeholders. This standard is particularly important as it facilitates SMEs' participation in the sustainable economy transition while ensuring they can efficiently meet reporting requests. The final version of this standard is expected to be published and undergo a consultation period.

What is the voluntary standard for SMEs?

The voluntary standard for SMEs (VSME) is a unique reporting tool designed to simplify sustainability reporting for non-listed SMEs. Developed by the European Financial Reporting Advisory Group (EFRAG), this standard aims to provide a standardized framework for SMEs to report on their environmental, social, and business conduct areas. It is part of EFRAG's effort to support SMEs in the sustainable economic transition, enhancing finance access and optimizing sustainability reporting processes.

Key Features of the VSME

The VSME encompasses general requirements, disclosures, policies, actions, targets, and metrics in environmental, social, and business conduct areas. It aims to standardize ESG (Environmental, Social, and Governance) data requests, easing the reporting burden on SMEs and facilitating their role in sustainable finance.

The standard consists of two main components:

1. The Basic Module: This module covers the essential reporting requirements for SMEs. It provides a simplified framework for reporting on key sustainability indicators, such as energy consumption, waste management, employee well-being, and community engagement.
2. Optional Modules: The VSME also offers two optional modules that SMEs can choose to include in their reporting. These modules cover specific sustainability aspects relevant to certain industries or sectors. SMEs can select the modules that align with their business operations and stakeholder expectations.

Benefits of the VSME

The voluntary standard for SMEs brings several benefits to these companies:

1. Simplified Reporting: The VSME provides a simplified framework that allows SMEs to report on their sustainability performance without excessive complexity. It reduces the reporting burden on these companies, enabling them to focus on their core business activities.
2. Standardized Reporting: The VSME ensures that SMEs follow a standardized approach to sustainability reporting. This standardization enhances comparability between companies and facilitates benchmarking, enabling stakeholders to assess the sustainability performance of SMEs more effectively.
3. Enhanced Stakeholder Engagement: By adopting the VSME, SMEs can effectively engage with their stakeholders, including banks, investors, and larger companies. The standard provides a common language and format for reporting, making it easier for stakeholders to understand and evaluate the sustainability performance of SMEs.
4. Access to Finance: The VSME aims to enhance SMEs' access to finance by providing standardized sustainability information. Banks and investors increasingly consider sustainability performance when making financing decisions. By reporting according to the VSME, SMEs can demonstrate their commitment to sustainable practices, increasing their chances of securing funding.

Consultation and Implementation

The European Financial Reporting Advisory Group (EFRAG) has launched a public consultation for two Exposure Drafts (EDs) on sustainability reporting standards targeting SMEs. The consultation is open until May 21, 2024. EFRAG encourages SMEs and other stakeholders to provide their input on the drafts' architecture, relevance, simplification, and market acceptance.

The first draft, ESRS LSME ED, focuses on SMEs considered public-interest entities, such as those with EU-traded securities. It aims to establish reporting standards that are proportional to the SMEs' scale and complexity, enhancing their access to finance and ensuring standardized sustainability information availability. This draft will be effective from January 1, 2026.

The second draft, VSME ED, introduces a voluntary standard for non-listed SMEs. It is designed to simplify sustainability reporting and aid in managing requests from banks, investors, and larger companies. This draft includes a basic module and two optional modules, providing flexibility for SMEs to tailor their reporting based on their specific sustainability aspects.

The consultation process allows SMEs to contribute their insights and ensure that the VSME meets their needs effectively. It is an opportunity for SMEs to shape the future of sustainability reporting and ensure that their voices are heard in the development of these standards.

In conclusion, the voluntary standard for SMEs (VSME) is a significant development in the field of sustainability reporting. It provides a simplified and standardized framework for non-listed SMEs to report on their sustainability performance. By adopting the VSME, SMEs can enhance their access to finance, engage with stakeholders effectively, and contribute to the sustainable economic transition. The ongoing public consultation presents an opportunity for SMEs to provide their input and shape the final version of the standard.