The European Financial Reporting Advisory Group (EFRAG) has announced the launch of its Voluntary Sustainability Reporting Standard for non-listed small and medium-sized enterprises (VSME). This standard is designed to help micro, small, and medium-sized companies report on environmental, social, and governance (ESG) issues in a simplified and consistent manner.

EFRAG, a private organization primarily funded by the EU, was tasked by the European Commission in June 2020 to develop EU sustainability reporting standards (ESRS) under the Corporate Sustainability Reporting Directive (CSRD). Additionally, EFRAG was asked to create voluntary sustainability reporting standards for non-listed SMEs, which are not directly subject to the CSRD but are increasingly being asked by larger companies and banks to provide ESG and climate-related information for value chain assessments.

The European Commission emphasized that these voluntary standards would help SMEs streamline their sustainability reporting, enabling them to secure green financing and support the transition to a sustainable economy. EFRAG stated that the VSME standard aims to replace the current fragmented and inconsistent ESG questionnaires and data requests faced by SMEs.

This new release follows the January publication of an exposure draft of the VSME and a consultation period for stakeholder feedback. Based on the input received, EFRAG incorporated further simplifications into the final standard.

One key change is the replacement of the materiality analysis required by the CSRD with an “if applicable” principle. This principle identifies circumstances that trigger sustainability disclosures aligned with the ESRS ESG topics. Feedback from SMEs indicated that the materiality analysis was too complex and expensive, while banks and investors questioned its reliability.

Looking ahead, EFRAG plans to roll out several initiatives in 2025 to support the adoption of the VSME. These include issuing guidance and educational materials, hosting awareness events, and monitoring the development of new tools and platforms.

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