The VSME standard from EFRAG aims to simplify sustainability reporting for small and medium-sized enterprises. Photo: Song_about_summer, Adobe Stock
EFRAG (European Financial Reporting Advisory Group) has published a revised proposal for a voluntary standard for sustainability reporting for SMEs. The standard will be submitted to the EU Commission in December.
New ESRS VSME (Voluntary Small Medium Enterprises European Sustainability Reporting Standards) from EFRAG aims to simplify sustainability reporting for small and medium-sized enterprises.
The EFRAG Secretariat met on October 30, 2024, to discuss and initiate the approval of the VSME standard in the EFRAG SRB (Sustainability Reporting Board). Several changes have been made based on feedback from the consultation round, workshops, and other input meetings. Some of the simplifications include:
- Removal of materiality analysis
- Changed module structure
- Focus on simplification and tools for SMEs
- New reporting points and requirements
- Limitation of sensitive data
Read more about the simplifications below.
EFRAG is inspired by NSRS
The board of NSRS (Nordic Sustainability Reporting Standard) has contributed to the consultation and workshops and sees that several of their inputs have been taken into account.
The Nordic standard has recently been updated in line with the first draft of VSME. Since the NSRS board has had several of their proposals accepted in the latest version of VSME, few changes are necessary. This once again shows that EFRAG has been inspired by the Nordic standard.
Furthermore, NSRS finds it unfortunate that certain areas have been omitted, as they are either essential for complying with Nordic regulations or reporting obligations. These areas will likely be continued as voluntary reporting points in the Nordic standard.
Some of the simplifications in the revised VSME
EFRAG has simplified the VSME standard in the revised proposal. Here are some of the simplifications:
Removal of materiality analysis
The standard no longer requires a materiality analysis as it was considered a burden for small and medium-sized enterprises (SMEs).
Instead, the standard focuses on predefined areas such as climate risk, biodiversity, and working conditions. This makes it easier for companies to report without having to conduct in-depth analyses.
The NSRS still believes that a materiality analysis can be important for SMEs to ensure a comprehensive understanding of both financial and non-financial factors affecting a business.
By conducting such an analysis, one can identify which aspects are significant for both internal and external stakeholders. This provides a more nuanced and balanced assessment of risks and opportunities, contributing to better decision-making and strategic planning.
Changed module structure
The previous “Business Partners” module has been renamed to “Comprehensive Module,” and the “Narrative-PAT” module has been removed, but several points have been incorporated into the other two modules. Only two modules, Basic and Comprehensive, are retained in the final structure.
This is a simplification of the modules, which the NSRS board also proposed by merging “Narrative-PAT” with “Business Partners.” The NSRS board further commented that several elements in the Narrative-PAT module are still important. It is therefore good that several of these aspects are incorporated into the final modules.
Furthermore, EFRAG aims to include a third module related to taxonomy adaptation, but this is postponed until there is clarity from the Platform of Sustainable Finance on the content and requirements.
Focus on simplification and tools for SMEs
Simplifications have been made to make the standard more practically applicable for SMEs.
There is also a clear demand for an online platform that can support SMEs in sustainability reporting. The platform will not be developed by EFRAG. Instead, it is up to the European Commission to decide if and how such a platform can be developed and made available after the VSME standard is approved.
New reporting points and requirements
Several reporting points have been added, removed, or adjusted, including climate risk, biodiversity, and working conditions. This is a consequence of feedback from SMEs, as well as banks and large enterprises. Some of the areas that have been changed are:
B 11 – Workers in the value chain, affected communities, consumers, and end-users:
According to EFRAG, there have been divided opinions on the complexity and necessity of including information on sustainable conditions. The SMEs that EFRAG has been in contact with suggested moving or deleting the point and asked for positive impacts to be included. Banks were divided on whether it is important or not. After public consultation, B11 was removed, and the information was moved to B2.
B 2 – Practices for transitioning towards a more sustainable economy:
As mentioned above, the area is expanded by incorporating aspects of the value chain and elements from the “Narrative-PAT module.” The majority of SMEs believe that the information is feasible, with suggestions to include philanthropic activities and measures for a good work-life balance.
Banks believe it is essential to include guidelines for emission reduction and ESG training.
Based on the consultation feedback, it was decided to integrate N3 and N5 into B2, include guidelines for sustainability and future initiatives, and cover previous B11 work in the value chain.
Disclosure BP 10 – Work-life balance:
Based on feedback from the consultation round, the majority of SMEs state that BP10 is feasible, but some question its relevance, and some believe it is too difficult to report. It was also suggested to expand the scope to cover more comprehensive goals for work-life balance.
Banks are divided; the majority see it as irrelevant, and some believe only medium-sized enterprises should report on work-life balance.
Large enterprises consider BP10 feasible, but opinions on relevance are divided. EFRAG has therefore decided to remove BP10.
Limitation of sensitive data
Companies can avoid reporting sensitive data if the data is considered to have commercial value or could negatively impact the company’s finances. These changes and simplifications reflect feedback from banks, SME representatives, and other users, aiming to create a standard that is both user-friendly and tailored to the reporting needs of smaller businesses.
What happens to the Nordic standard, NSRS?
NSRS will be updated when the final version is submitted to the EU Commission at the end of December. Some voluntary elements will likely be retained as they are considered essential for the Nordic market, such as reporting on parental leave. Regnskap Norge believes there are good reasons to start reporting with the current version, as it provides a good basis for the company’s sustainability report. The Nordic standard can be downloaded at nsrs.eu.
Facts:
- Who should report according to the VSME ESRS standard? Small and medium-sized enterprises that are not listed on the stock exchange or covered by CSRD.
- Where can I find the revised version from EFRAG? You can find the revised version on EFRAG’s website.
- Where can I find information about the meeting on October 30? Meeting documents from the EFRAG SRB meeting can be found on EFRAG’s website.