Standard for voluntary sustainability reporting for unlisted SMEs is ready

On 17 December 2024, the European Financial Reporting Advisory Group (EFRAG) announced that it has submitted to the European Commission a standard on voluntary sustainability reporting for unlisted micro, small and medium-sized enterprises (SMEs), known as the VSME standard. The final version of the standard is intended to help SMEs in communicating sustainability, in the transition towards sustainable business, as well as in creating better opportunities for obtaining financing.

At the request of the European Commission, EFRAG has prepared a new sustainability reporting standard for non-listed SMEs (the so-called VSME). This standard is intended to help SMEs simplify sustainability reporting, gain better access to lenders, investors and customers by standardising the requirements for ESG data (environmental, social and governance data) that these companies can voluntarily track and disclose to third parties

The new standard is intended for companies that are not within the mandatory scope of the Sustainability Reporting Directive (CSRD 2022/2464), which has been transposed into legislation in Slovakia by an amendment to the Accounting Act No. 431/2002 Coll. Due to its voluntary nature, the VSME standard is not issued as a delegated act by the European Commission, unlike the ESRS (European Sustainability Reporting Standards), which are mandatory for large companies (with a turnover above EUR 50 million, net assets above EUR 25 million and number of employees above 250) in the scope of the CSRD. EFRAG's work on the VSME is based on the European Commission's September 2023 SME aid package, which refers to this specific standard as a measure to support SMEs in accessing sustainable finance. In 2025, EFRAG will publish a range of support materials and organise public events to promote the use of the VSME standard by firms.

The VSME is designed to support the availability of simple but relevant data related to sustainability. It aims to reduce the burden on SMEs currently facing multiple uncoordinated data requests and, if supported by appropriate online platforms and tools, will offer new business and funding opportunities as well as additional insight for management of reporting companies

Structure of the standard

VSME offers a modular approach. It is structured in two main modules  can be combined with each other. The VSME standard is divided into a "Core Module" and a "Comprehensive Module" and at 66 pages is considerably shorter than the ESRS standard. Firms do not need to perform a double materiality assessment. The double materiality assessment has been replaced by the "disclose if relevant" principle.

Basic module

The first core module is designed primarily for micro-enterprises and also serves as a minimum requirement for other SMEs. It consists of eleven ESG data areas: general and basic information (B1 and B2) and basic metrics (B3 to B11).

 

B1 - Basis for preparation

B2 - Description of practices, policies and future initiatives for the transition to sustainable business

B3 - Energy and greenhouse gas emissions

B4 - Air, water and soil pollution

B5 - Biodiversity

B6 - Water consumption

B7 - Resource use, circular economy and waste management

B8 - Labour force - general characteristics

B9 - Workers - health and safety

B10 - Workers - pay, collective bargaining and training

B11 - Convictions and fines for corruption and bribery

 

Comprehensive module

The second, comprehensive module sets out, in addition to the B1-B11 disclosures, the disclosures likely to be required by banks, investors and corporate clients of the firm over and above the core module. It also includes information needed by business partners to assess the risk profile of the sustainability of the enterprise, e.g. as a (potential) supplier or (potential) banking client. The application of the core module is a prerequisite for the application of the comprehensive module. The module includes an additional nine ESG data areas, the reporting of which presupposes a higher level of ESG in the firm, e.g. related to the size of the firm.

 

C1 - Strategy - business model and sustainability

C2 - Description of practices, policies and future initiatives for the transition to sustainable business

C3 - Greenhouse gas emission reduction and climate transition targets

C4 - Climate risks

C5 - Other (general) characteristics of the workforce

C6 - Human rights policies and processes

C8 - Revenue from certain controversial sectors

C9 - Gender diversity ratio in the governing body

 

Access the VSME Standard together with EFRAG's cover letter, cost-benefit analysis and summary of feedback from the public consultation via a press release on EFRAG's website.

Benefits for SMEs

By adopting the VSME standard, SMEs can not only increase their transparency and access to finance, but also demonstrate accountability and foresight in a competitive marketplace. The implementation of VSME brings a number of significant benefits for SMEs:

  1. Increased transparency and credibility: by implementing VSMEs, SMEs can demonstrate their commitment to transparency, thereby earning greater trust from investors, customers and regulators.
  2. Better access to finance: by providing standardised and reliable sustainability data, SMEs can improve their attractiveness to lenders and investors, making it easier to access finance.
  3. More informed decision-making: thanks to a structured reporting framework, SMEs can gain a better overview of their operations, leading to better decision-making and strategic planning.
  4. Competitive advantage: in a market environment where sustainability is increasingly valued, SMEs that adopt VSME can achieve a better market position and gain greater customer loyalty.

EU definition of SMEs

SMEs are defined in EU 2003/361. Recommendation The main factors determining whether an enterprise is an SME are the number of employees and turnover or the total balance sheet total.

Category of enterpriseNumber of employeesTurnoverTotal balance sheet amount
Medium< 250≤ EUR 50 million≤43 million
Small< 50≤10 million≤ EUR 10 million
Micro< 10≤ EUR 2 million≤ EUR 2 million

The table below shows the thresholds for each SME category

More detailed information on the definition of SMEs can be found in the European Commission's guide.

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