The Exposure Draft Voluntary standard for non-listed small- and medium-sized undertakings (VSME ED)
The aim of this voluntary draft standard is to provide critical support to micro, small and medium-sized businesses in various dimensions and builds on the existing CSRD. Primarily, it seeks to enable them to contribute meaningfully to a more sustainable and inclusive economy. It also seeks to strengthen their capacity to address sustainability challenges, including environmental considerations and social responsibilities such as ensuring the health and safety of their employees. By addressing these critical areas, the standard seeks to pave the way for their competitive advancement and strengthen their resilience in the short, medium and long term. It also aims to provide the necessary information to meet the data requirements of lenders, investors and larger companies seeking sustainability information from their suppliers, thereby facilitating their access to finance.
This draft standard operates on a voluntary basis and extends its scope to companies that are not listed on regulated markets within the European Union. It includes micro, small and medium-sized enterprises based on specific financial thresholds set out in Directive 2013/34/EU.
The threshold are as follows:
- An undertaking is micro if it does not exceed two of the following thresholds:
- €350,000 in balance sheet total,
- €700,000 in net turnover, and
- 10 employees.
- An undertaking is small if it does not exceed two of the following thresholds:
- €4 million in balance sheet total,
- €8 million in net turnover, or
- an average of 50 employees.
- An undertaking is medium if it does not exceed two of the following thresholds:
- €20 million in balance sheet total,
- €40 million in net turnover, and
- 250 employees.
Although these companies are outside the scope of the Corporate Social Reporting Directive (CSRD), they are encouraged to adopt this draft sustainability reporting standard. Aligned with the European Sustainability Reporting Standards (ESRS), which are tailored for larger companies, this standard considers the specific characteristics and needs of smaller companies. While not legally mandated, this Standard provides a voluntary framework for sustainability reporting that aims to increase transparency and accountability among smaller companies.
The standard itself comprises three modules, each tailored to either micro, small or medium-sized enterprises. They differ in reporting depth and requirements, underlining the importance of recognising their differences and similarities. The three models are described in more detail below:
Basic Module
The Basic Module is the cornerstone of sustainability reporting and covers disclosures from B1 to B12. It covers fundamental aspects such as environmental impact, social responsibility and governance practices. It is particularly suitable for micro-enterprises, but also serves as a minimum requirement for larger organisations. Unlike the other modules, the Basic Module does not require a materiality analysis. However, disclosures B 3 to B 12 must be provided where applicable to the specific circumstances of the organisation, ensuring that smaller organisations also contribute to transparency and accountability in sustainability reporting.
Narrative-Policies, Actions and Targets (PAT) Module
The PAT Module goes beyond the basic disclosures outlined in the Basic Module and focuses on narrative disclosures (N1 to N5) about an organisation’s policies, actions and targets (PAT) related to sustainability. This module is recommended for companies with formalised and implemented PAT initiatives and requires a materiality analysis to identify the relevant sustainability issues from Appendix B. This ensures that organisations prioritise and disclose information that is material to stakeholders and aligned with strategic objectives.
Business Partners (BP) Module
The BP module addresses the specific information needs of external stakeholders such as lenders, investors and corporate customers. In addition to the disclosures in the Basic Module, this module specifies specific data points for reporting, reflecting the increasing demand for sustainability information from business partners. Similar to the PAT module, a materiality analysis is required to determine the relevant sustainability issues for the organisation. Notably, if an organisation prepares both the PAT and BP modules, material issues are disclosed only once, minimising duplication and streamlining reporting efforts.
In summary, these three modules provide a structured approach to sustainability reporting that addresses the diverse needs of organisations and their stakeholders. By following these modules and conducting materiality analyses, organisations can increase transparency, demonstrate their commitment to sustainability and ultimately drive positive social and environmental impacts.
*The content of this blog post is based on the Exposure Draft Voluntary standard for non-listed small and medium-sized undertakings (VSME ED) published by EFRAG for comment only. The exposure draft is open for comment until 21 May 2024 and is available on the EFRAG website.
For more information, visit www.dfge.de or contact us via Mail or phone +49 8192 99 7 33-20. Together we can assess which elements of the report we can help you with, from identifying material topics, to filling in the gaps, to preparing a technical report for a round sustainability reporting.
