EFRAG's sustainability standards for SMEs: the key take-aways

We are excited to participate in EFRAG's field test of its sustainability standards for SMEs. These SME standards complement the official ESRS standards for large companies, established under the European CSRD legislation. Our co-founder, Sophie, will share the key takeaways.

Hi Sophie! EFRAG, CSRD, ESRS, a lot of acronyms... Can you explain?

Sure thing! The EFRAG, the European Financial Reporting Advisory Group, is set up by the European Commission to develop sustainability reporting standards. The European Commission has issued new legislation called the Corporate Sustainability Reporting Directive (CSRD), which requires large companies to share their environmental and social activities. To help with this, EFRAG created the European Sustainability Reporting Standards (ESRS) So, the CSRD needs standards (ESRS) developed by EFRAG.

Isn't this only for large organisations?

Yes, that's right. The CSRD and ESRS are officially for large companies, those with a balance sheet over €25 million, net turnover over €50 million, or more than 500 employees. But here's the catch: these big companies need a lot of information about sustainability from their smaller partners in the value chain. Providing this information can be tricky, time-consuming, and expensive. Some small business owners I know are already getting these requests. It could hurt their relationships with significant customers if they can't provide the info. So, even though CSRD doesn't directly target SMEs, they still feel the impact.

And the SME standards are a solution?

Exactly. Small businesses don't have to report their social and environmental activities, but customers, banks, and investors often ask them many sustainability questions. Expecting SMEs to follow the same detailed standards as large companies is unrealistic. EFRAG knows this and is working on more straightforward standards for small businesses (VSME). These standards aim to standardise data requests from business partners and help SMEs track and improve their sustainability efforts. EFRAG is asking for feedback on these standards, and we're part of the field test.

Tell us more about the field test.

The field test by EFRAG ensures that the SME standards fit both the 'big' ESRS and what the market needs. There’s often a gap between laws and how they’re implemented. Since sustainability reporting is new, especially for SMEs, it’s crucial to identify and bridge this gap early. We, along with other experts, are involved. We discuss the feasibility, costs, challenges, benefits, and usefulness of the SME standards (VSME) through workshops, interviews, and surveys.

What are the key takeaways?

There are a few key points. First, the standards have three modules. The basic module is for all SMEs. Then, there’s the business partner module for questions from business partners and the narrative module for businesses with existing policies and targets. These modules help SMEs focus on what’s important with clear guidelines.

Second, there are still challenges. Data quality and availability, especially on environmental topics, are challenging. Also, figuring out which sustainability topics matter most to your business (double materiality) is tough, but it’s not part of the basic module. There’s also a need for reasonable software solutions.

Finally, participants have seen benefits from using VSME: simplified data requests, cost savings, better access to finance, improved market positioning, and increased awareness of sustainability issues.

Thank you Sophie. Any final words?

It’s great to see EFRAG genuinely seeking feedback to create something that helps small businesses rather than adding to their burdens. I’m happy we could support them. I always suggest starting small with sustainability for the business owners I talk to. It doesn’t have to be an extensive report or in-depth analysis. Just start by learning about it and talking with your team. A logical next step would be a baseline measurement of your company's sustainability.

At Eevery, we’re here to help SMEs navigate the complex world of sustainability and ESG. Our platform is calibrated to meet all current standards and legislation, and we'll be ready to incorporate the VSME standards as soon as they are officially published. We support SMEs in managing data requests and enhancing their sustainability performance, making the journey towards a more sustainable future easier and more effective. Interested and do you want to know more? We love to help.

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