Sustainability reporting has become an increasingly central part of business operations. While large companies have long been expected to report on their activities related to the environment, social issues, and governance (ESG), small and medium-sized enterprises (SMEs) will soon have their own voluntary sustainability reporting guideline, the VSME (Voluntary Standard for non-listed Small- and Medium-sized Enterprises). This guideline provides SMEs with a simple and practical way to meet the growing expectations and requirements related to sustainability. The guideline was developed by EFRAG (European Financial Reporting Advisory Group), which is also behind the sustainability reporting directive CSRD (Corporate Sustainability Reporting Directive) for large companies. The draft of the guideline has just returned from the consultation phase.
The new sustainability reporting guideline is specifically aimed at non-listed SMEs, which are increasingly facing demands to report sustainability-related information to their business partners and financiers. The goal of the guideline is to provide these companies with a unified and clear framework that allows them to systematically and easily report on sustainability-related matters.
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The guideline is structured into three modules:
Basic Module
This module is designed as the starting point for sustainability reporting in SMEs. It includes the key reporting requirements related to the environment, social issues, and business practices. The Basic Module is simple and straightforward to use, and it is specifically targeted at microenterprises.
Companies are required to report all the indicators defined in this module without the need for a separate materiality analysis, making it easily accessible and straightforward to implement.
Narrative PAT Module (Policies, Actions, and Targets)
This module focuses on the company’s sustainability policies, actions, and targets. It allows businesses to describe how they manage sustainability issues as part of their operations. The module requires a materiality analysis, where the company identifies and reports only the sustainability issues that are relevant to its operations and stakeholders.
The module applies when a company has clear sustainability policies, actions, and targets that it wishes to report on.
Business Partners Module
This module is specifically designed for situations where SMEs are required to provide sustainability-related information to business partners, such as lenders or investors. It includes key ESG metrics, such as greenhouse gas emissions and transition plans to combat climate change, which investors and business partners may request. The module is voluntary and offers SMEs the opportunity to address stakeholder information needs more comprehensively.
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Opportunities and Benefits for SMEs
The sustainability reporting guideline provides SMEs with numerous opportunities and benefits. It helps SMEs integrate sustainability as a core part of their business strategy and daily operations. Companies can identify and manage key environmental and social risks, ensuring that their business is responsible and sustainable. This can enhance the company’s reputation and strengthen its position in a market where the importance of sustainability is continuously growing.
By adhering to the sustainability reporting guidelines, companies can more easily meet the information needs of investors and lenders. This can open up new opportunities for securing financing and improve the company’s competitiveness. Clear and transparent reporting can also reduce risks for investors and lenders, potentially leading to more favorable loan terms or better investment conditions.
The modular structure provides SMEs with flexibility. Companies can choose which modules to implement based on their own sustainability reporting needs and the information requests from stakeholders. This reduces the administrative burden of reporting and allows companies to focus on the aspects that are most relevant to their business.
The clear and simple structure of the guideline helps SMEs reduce the costs associated with reporting. Companies can focus on the essential issues and omit less relevant aspects, making the process more efficient. Additionally, the modular approach allows for gradual expansion of reporting as the company’s needs and resources grow, reducing the need for significant initial investments.
The modular approach allows for gradual expansion of reporting as the company’s needs and resources grow, reducing the need for significant initial investments.
SMEs that follow the sustainability reporting guidelines can gain a competitive advantage in markets where customers and partners increasingly value corporate responsibility. Clear and consistent reporting can also enhance the company's reputation and strengthen its brand, potentially leading to new business opportunities.
The proposed sustainability reporting guideline provides SMEs with an effective and practical tool to meet sustainability-related requirements and expectations. The modular structure of the guideline offers flexibility, allowing companies to start reporting on sustainability at a simple level, with the option to expand the reporting as needed.
SMEs can benefit from following the guideline in various ways, such as improving sustainability management, facilitating access to financial markets, simplifying the reporting process, and reducing costs. Additionally, adhering to the guideline can help SMEs gain a competitive advantage in markets where sustainability is becoming increasingly important.
When companies integrate sustainability into their business strategy and report on it transparently, they can not only meet the expectations of their stakeholders but also build long-term and sustainable businesses that thrive in future challenges.
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