As the Corporate Sustainability Reporting Directive (CSRD) comes into effect, major changes are taking place in the field of sustainability reporting. In addition to large corporations, listed SMEs will also be required to adhere to standardized sustainability reporting under the new directive.
The reporting scope now extends across supply chains. As a result, the need for accessible sustainability data is growing even among unlisted SMEs – who will increasingly receive information requests from business partners for reporting purposes. As data collection and sharing become the norm, staying competitive in the market will require SMEs to keep up with these evolving trends.
Many SMEs will need to start sustainability reporting from scratch, since they currently lack the structures and practices for data collection. To remedy this, the European Financial Reporting Advisory Group (EFRAG) has created standardized reporting recommendations for both listed and unlisted SMEs.
The New Reporting Recommendations Provide Structure for Sustainability Reporting
The reporting recommendation for listed SMEs (ESRS LSME ED, Exposure Draft ESRS for listed SMEs) is designed to meet the new requirements set by the Corporate Sustainability Reporting Directive. Their goal is to provide companies with a reporting framework that is proportional and relevant to this specific target group. Additionally, these standards are expected to support companies in securing better financing by granting investors access to comparable sustainability data.
The new reporting structure consists of a three-part general section and three measurement areas:
General section:
- General requirements
- General information
- Practices, actions and targets
Measurement areas:
- Environment
- Social
- Business
The reporting recommendation for non-listed SMEs (VSME ED, The Voluntary Standard for non-listed SMEs) is designed to facilitate responses to information requests.
While non-listed SMEs are not yet required to conduct sustainability reporting, they may receive requests for sustainability-related information, particularly from banks, investors, and corporate clients subject to the reporting directive. On the other hand, the reporting recommendation is expected to reduce the number of uncoordinated information requests, thus helping non-listed SMEs to better connect with various stakeholders.
The reporting guidelines include the following sections:
- General module
- two additional optional modules:
- practices, actions and targets
- business partners
Reporting Recommendations To Be Approved After the Consultation Process
EFRAG has initiated a consultation process that runs until May 21, 2024, during which a field test will be conducted to finalize the recommendations. During this period, stakeholders are encouraged to trial the proposals and share their experiences regarding the feasibility and effectiveness of the drafts.
“Well-planned is half done”. Although the details of the reporting recommendations for SMEs are still awaiting final approval, we recommend that companies begin working on the matter now. The existing guidelines offer a solid foundation for the planning of sustainability reporting implementation.
If you need support with adopting and integrating these standards into your business operations, Rodinia is happy to assist. Feel free to contact us!
