The Platform on Sustainable Finance (PSF), an expert group mandated by the European Commission to guide sustainable finance policy development, has released a new report introducing the “SME Sustainable Finance Standard.” This proposed framework aims to facilitate small and medium-sized enterprises (SMEs) in securing external funding for sustainability and climate transition initiatives.

Recognizing the crucial role of SMEs in the EU’s sustainability transition—contributing over half of the EU’s GDP and accounting for more than 63% of enterprise CO2 and GHG emissions—the PSF highlights the financial barriers SMEs face in decarbonizing and developing sustainable solutions. These challenges include high minimum loan requirements, complex banking regulations, limited awareness, the absence of standardized green financing definitions, and insufficient sustainability data reporting by SMEs.

While the EU Taxonomy was designed to classify economic activities for sustainable financing, its requirements are often too complex for SMEs to meet. To bridge this gap, the PSF’s proposed standard offers a simplified system to improve SME access to sustainable financing and streamline sustainability disclosures for financial institutions.

Key elements of the standard include minimum environmental and social safeguards, such as excluding financing for activities restricted under the EU Benchmark Regulation for Paris-Aligned Benchmarks (PAB). SMEs themselves must not fall within these excluded sectors or provide dedicated services for such activities. Additionally, the framework aligns reporting requirements with voluntary SME sustainability standards (VSME), ensuring SMEs can disclose sustainability metrics as part of voluntary reporting or in response to investor and value chain demands.

The PSF also recommends developing an online tool to help SMEs determine whether their activities or investments meet the SME Sustainable Finance Standard criteria. Initially focused on climate, the standard is expected to expand to other environmental objectives over time.

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