Spotlight On SMEs: EFRAG Releases Proposed CSRD Reporting Standards For Small Enterprises

Spotlight On SMEs: EFRAG Releases Proposed CSRD Reporting Standards For Small Enterprises

In January 2024, the European Financial Reporting Advisory Group (EFRAG) announced the release of proposed sustainability reporting standards for public-interest small and medium-sized enterprises, marking the next step towards the full implementation of the EU’s Corporate Sustainability Reporting Directive (CSRD). 

With a target date of CSRD reporting for listed SMEs of 2026, the proposed standards include organizations with transferable securities, small and non-complex institutions (SNCIs), and captive insurers and reinsurers. EFRAG’s proposed standards aim to match reporting requirements to the scale and complexity of the activities and capabilities of listed SMEs to ensure their access to green capital. Additionally, they aim to standardize sustainability information across the EU market. As a result, public-interest SMEs will have to report details on policies, targets and metrics for environment, social and business conduct, including information on energy consumption, Scope 1, 2 and 3 emissions, climate- and transition-related financial risks, and biodiversity impacts. 

The proposal expands EFRAG’s efforts to include SMEs in the design of ESG and sustainability reporting disclosures. In 2023, EFRAG developed a voluntary sustainability reporting standard for non-listed SMEs (VSMEs) to support non-listed micro, small and medium-sized firms in reporting sustainability information to business counterparts.

With SMEs representing 99% of the EU economy, EFRAG’s proposed mandatory and voluntary standards foster the development of consistent ESG and sustainability disclosures that match SMEs’ capabilities and time constraints. SMEs often lack finance, tech and sustainability expertise, as well as internal processes to understand, collect and share the requested data, which are usually uncoordinated by investors and clients. Reporting complexities can limit their access to sustainable finance and hinder the EU’s ambitions to transition to a green economy.

In this context, ESG reporting software vendors play a crucial role in easing sustainability data collection and reporting for SMEs. ESG reporting requires robust data collection capabilities to ensure the accuracy and consistency of sustainability metrics. While some ESG and sustainability digital tools target medium to large enterprises, other software vendors currently offer capabilities to help SMEs manage and report sustainability information. For example, APlanet offers SMEs customized tools and customer support to develop materiality assessments and ESG-specific metrics. Additionally, Brussels-headquartered vendor Greenomy partners with SIX and powers its SME Sustainability Assessment Solution to assist SIX’s banking customers in assessing the sustainability performance of their SME clients.

As ESG and sustainability reporting requirements mature, SMEs play a pivotal role in the transition to a sustainable economy – and ESG reporting software vendors will be key as enablers of consistent, standardized and accurate sustainability information across the market. To learn more about ESG reporting software vendors, see Verdantix Green Quadrant: ESG Reporting And Data Management Software, and to learn about ESG regulations, see Verdantix Strategic Focus: CSRD And ESG Reporting Readiness.