The European Commission today (30 July) has adopted the voluntary sustainability reporting standard for non-listed SMEs (VSME standard) as a recommendation, and reiterated that it will serve as the basis for a future voluntary reporting standard for those scoped out of the CSRD.
EFRAG developed and consulted on the standard which was delivered as technical advice to the Commission last December. It provides a standardised framework for micro, small and medium-sized companies in the EU - which fall outside of the scope of the CSRD - to voluntarily disclose sustainability-related information.
In a statement, the Commission said it “encourages large companies and financial institutions that seek sustainability information from SMEs to base their requests on the voluntary standard as far as possible”.
“SMEs may also wish to voluntarily report sustainability information to improve their access to sustainable finance and better understand and monitor their own sustainability performance, thereby improving their resilience and competitiveness,” it continued.
While mirroring the topics in the full set of ESRS, the VSME standard is designed to be more proportionate for smaller companies and therefore contains fewer datapoints and simplified disclosures.
A proportionality mechanism is also built into the standard.It is split into two modules: the basic module which consists of 11 key sustainability disclosures; and the comprehensive module which builds in nine additional disclosures (see box out).
VSME structure
Basic module:
(B1) Basis for preparation; (B2) Practices, policies and future initiatives for transitioning towards a more sustainable economy; (B3) Energy and GHG emissions; (B4) Pollution of air, water and soil; (B5) Biodiversity; (B6) Resource use, circular economy and waste management; (B8) Workforce general characteristics; (B9) Workforce health and safety; (B10) Workforce remuneration, collective bargaining and training; (B11) Convictions and fines for corruption and bribery
Comprehensive module:
(C1) Business model and sustainability-related initiatives; (C2) Description of practices, policies and future initiatives for transitioning towards a more sustainable economy; (C3) GHG reduction targets and climate transition; (C4) Climate risks; (C5) Additional general workforce characteristics; (C6) Additional own workforce information – human rights policies and processes; (C7) Severe negative human rights incidents; (C8) Revenues from certain activities and exclusion from EU reference benchmarks; (C9) Gender diversity ratio in the governing body
The basic module sets out the minimum requirements for small and medium-sized entities reporting under the VSME standard, whilst micro-entities are permitted to choose which disclosures in the basic module they adopt.
Meanwhile, the comprehensive module includes datapoints that are likely to be requested by banks, investors and corporate clients. Companies reporting under the VSME standard are permitted to either apply the basic module or the two modules together.
Notably, the standard does not require a materiality assessment. When reporting under the comprehensive module, if a company chooses to omit a disclosure it is assumed to not be applicable to its circumstances. Companies adopting the standard are also permitted to include supplementary information alongside the disclosures set out in the VSME standard.
The Commission now formally recommends that SMEs reporting sustainability information should do so using the VSME standard. It clarifies that there is no obligation to obtain assurance on these disclosures and a self-declaration that a company has reported under the standard is sufficient.
It also recommends that EU member states “raise awareness” of the benefits of reporting under the VSME and “take appropriate measures” to foster its implementation.
Following the Commission’s announcement, EFRAG Technical Expert Group chair Chiara Del Prete commented: “VME is now the reference point for standardised data demands. The recommendation will serve to further stimulate its adoption and this is pivotal for the realization of the expected benefits of the standard”.
Earlier this year, EFRAG released a set of tools to support digital reporting under the VSME standard. This includes an XBRL Taxonomy, a digital template to support the entry of information, and a tool to convert information submitted through the digital template into XBRL format.
“The Digital Template will allow the SME ecosystem to quickly adopt the new reporting standard and enable machine-readable reporting,” Del Prete said.
In its omnibus package to simplify sustainability requirements, announced in February, the Commission proposed raising the threshold for CSRD compliance to companies with over 1,000 employees – which would reduce the scope from 50,000 to 7,000 reporting entities.
When announcing this proposal, the Commission said it aims to adopt a voluntary reporting standard as a delegated act, which companies scoped out of the directive would be recommended to adopt.
In a Q&A document released today, it stated that this voluntary standard will set the limit for the information large companies can request from SMEs in their supply chains and “will be based on the VSME standard developed by EFRAG”.
The document reads: “Today’s recommendation on a voluntary standard will be used as the basis for the future voluntary standard as proposed by the Omnibus I simplification package. However, the Commission cannot at this stage exclude the possibility that certain changes may be necessary.”
