Simplified sustainability reporting standards on the horizon for SMEs
The European Financial Reporting Advisory Group (EFRAG) has opened the floor for public consultation on two draft EU Sustainability Reporting Standards (ESRS) tailored specifically for small and medium enterprises.
The draft standards mark a significant leap in shaping Europe's sustainability reporting landscape under the EU’s Corporate Sustainability Reporting Directive (CSRD). They include a mandatory standard for listed SMEs (LSME) (including those whose transferable securities are admitted to trading on a regulated market in the EU, small and non-complex institutions and captive insurers and reinsurers), and a voluntary standard for non-listed SMEs (VSME).
The rationale – balancing scale and complexity with standardisation
It is widely acknowledged that SMEs often struggle to report on sustainability due to resource constraints and the complexity of the current reporting landscape. EFRAG’s objective therefore is to establish reporting requirements proportionate to the scale and complexity of SMEs whilst balancing the need to facilitate SMEs’ participation in the sustainability transition.
What does this mean for UK SMEs
The mandatory standard applies to listed SMEs. By enabling standardisation of sustainability information, the new reporting standard is expected to improve access to finance and create a level playing field with larger listed companies. The LSME standard will be effective on 1 January 2026 with an additional two-year opt out.
For non-listed SMEs, who are often faced with a multitude of sustainability data requests from stakeholders such as banks and investors, as well as from larger companies for which they are suppliers to (and who are subject to CSRD), the new standard is designed as a simple free reporting tool which will help reduce the amount of time spent managing requests, as well as improve access to lenders, investors and clients.
What can SMEs expect?
To ensure proportionality, the draft ESRS includes the following key features:
- Focus on materiality: SMEs are only required to report only on sustainability matters pivotal to their business
- Simplified materiality assessment process: providing clear guidance on how to conduct these efficiently
- Reduced reporting topics: compared to standards for larger companies
- Simplified reporting format
Want to find out more?
Click here to access the exposure drafts and discover how to engage in shaping the future of sustainability reporting for SMEs (open until 21 May 2024).