ESG reporting for SMEs: the current situation

How do you as an SME prepare for the Corporate Sustainability Reporting Directive? In this article we outline what to expect, both for listed and unlisted SMEs.

September 9, 2024

by

Sophie Maeseele

CSRD general

Corporate Sustainability Reporting Directive

The Corporate Sustainability Reporting Directive (or CSRD) requires companies to report on their sustainability strategy, policy and performance. How exactly they have to do that is laid out in the European Sustainability Reporting Standards, or ESRS. The first set of standards was issued, and consisted of two cross-cutting standards (ESRS 1 and ESRS 2) and ten topical standards on environmental (E), social (S) and governance (G) topics (the topical sector-agnostic standards).

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The next set includes requirements for listed SMEs. These clarify how comprehensive their reporting should be. For unlisted SMEs, EFRAG (the European Financial Reporting Advisory Group) provides reporting recommendations.

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LSME: obligatory standard for listed SMEs

The CSRD applies to all listed companies, including listed SMEs (the reporting standard is therefore abbreviated to LSME). To ensure that the reporting burden on listed SMEs is in proportion to that of larger players, EFRAG is developing a set of separate, proportional standards. These will be closely modelled on the standards for large companies.

What can you expect?

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The outline of the LSME is largely the same as the standards for large companies: General Requirements (ESRS 1) and General Disclosures (ESRS 2), followed by Environmental, Social and Governance disclosures. The main principles of the CSRD remain the same: the materiality analysis, the due diligence policy, etc. form the basis for the report.
The standards themselves will be shortened in terms of content: the materiality analysis can be more limited, and certain disclosure requirements will be merged (policies, targets and actions will be reported together, for example).
Furthermore, the number of data points will be significantly reduced, a major point considering the delegated acts for large companies contain more than a thousand of such. One example: for listed SMEs, information such as financial planning and resources can be omitted. The same goes for an assessment of SMEs’ own resilience.
One more thing of interest: additional guidance is expected to be published on how information should be presented in the sustainability statement: in qualitative or quantitative form.

Timing

The standards for listed SMEs will be published as delegated acts. EFRAG expects to submit the standards for a four-month public consultation in January 2024. EFRAG’s technical advice to the European Commission could then follow in November 2024. From the 2026 fiscal year onwards, listed SMEs must report in line with their delegated acts. A two-year extension to this is possible, if the reasons are clearly explained.

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A group of about a thousand companies across Europe are impacted. Micro-enterprises are not included.

VSME: voluntary standard for unlisted SMEs

SMEs not directly covered by the CSRD will likewise soon have the opportunity to showcase their sustainable progress through a compliant report. Voluntary standards for unlisted SMEs (VSME) will be introduced. Europe foresees that such organisations will also have to answer many ESG questions. For instance, they will have to provide information to the larger players to whose supply chain or consolidated group they belong.

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Excluding micro-enterprises, about 1.5 million SMEs will be able to use these standards.

Timing

As these are voluntary standards, the lead time is shorter. EFRAG will release a draft version of the standard in the first months of 2024. As with the LSME, the VSME will be open for public consultation for a period of several months, and EFRAG expects to present its standard to the European Commission in November 2024.

Are you an SME and having trouble making sense of the impending reporting obligation? Our experts will be happy to help. Feel free to contact us at mail@pantarein.be.