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EFRAG aids SMEs with new sustainability data standard

Author: ICAEW Insights

Published: 06 Feb 2024

Exposure Draft proposes a simple reporting tool to help SMEs respond to requests for sustainability data from business partners such as banks, investors or larger company clients.

The European Financial Reporting Advisory Group (EFRAG) has published new requirements in two draft reporting standards for public and private small companies in a bid to standardise sustainability data requests and improve access to finance. 

The Exposure Draft (ED) proposes a simple reporting tool to help non-listed SMEs respond to requests for sustainability data that they receive from business partners such as banks, investors or larger companies for which non-listed SMEs are suppliers.

The voluntary sustainability reporting standard for non-listed SMEs (VSME) aims to standardise the current numerous environmental, social and governance data requests – which present a significant burden on non-listed SMEs – by reducing the number of requests they receive. This is expected to support SMEs in having better access to lenders, investors and clients. 

EFRAG Sustainability Reporting Board Chair Patrick de Cambourg says: “SMEs are a crucial part of the European economy. After the completion of the ESRS (European Sustainability Reporting Standard) for large undertakings, EFRAG is releasing these two proposed standards to support SMEs in being part of the transition to a more sustainable economy, getting appropriate access to finance and reducing the burden of dealing with uncoordinated data-requests, while preparing decisions-useful information for all.”

Laura Woods, Technical Manager in ICAEW’s Corporate Reporting Faculty says: “For some time ICAEW has emphasised the need for proportionality considerations when producing new sustainability reporting standards and therefore these draft standards – specifically designed for smaller entities – are a welcome development”. 

Non-listed companies that supply larger companies are increasingly expected to provide them with emissions data as part of the Scope 3 emissions, which are a result of activities from assets not owned or controlled by listed companies, but which indirectly affect their supply chains.

EFRAG has also developed a reporting standard for SMEs that are public-interest entities (LSME). These include SMEs whose transferable securities such as bonds or shares are admitted to trading on a regulated market in the European Union.

The LSME standard will be effective on 1 January 2026 with an additional two-year opt out. The purpose of this standard is to set reporting rules that are “proportionate and relevant to the scale and complexity of the activities and to the capacities and characteristics of LSMEs”.

The new rules are expected to support LSMEs in gaining better access to finance and avoid discrimination against them on the part of financial market participants, as it will help to standardise sustainability information.

Chiara Del Prete, EFRAG Sustainability Reporting Technical Expert Group Chair, says: “These two EDs respond to an effort to develop a set of sustainability information that is at the same time proportionate to SMEs and able to support the provision of the information that we already see – and more and more expect to see – requested by business counterparties. For the success of our voluntary standard for non-listed SMEs, market acceptance will be key.” 

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