EFRAG released the Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME), as announced last December 17 at EFRAG website.

Here you find some questions you might have on VSME standard and FCM - Fédération des Experts Comptables Mediterranéens / Federation of Mediterranean Accountants answers.

What is the VSME?

The VSME, or Voluntary Sustainability Reporting Standard for non-listed SMEs, is a voluntary standard designed to support small and medium-sized enterprises (SMEs) in their sustainability reporting journey. It aims to simplify and harmonise ESG reporting for non-listed SMEs in the EU, helping them meet the increasing demands for sustainability information from stakeholders such as investors, banks, and large corporate clients.

Who is the VSME for?

The VSME is specifically targeted at non-listed SMEs operating in the EU, meaning their securities are not traded on a regulated market. It can be applied by a wide range of businesses, from micro-undertakings with fewer than 10 employees to medium-sized companies with up to 249 employees, across various sectors.

Why was the VSME developed?

The VSME was developed to address several challenges faced by SMEs in sustainability reporting. Firstly, existing reporting frameworks were often too complex and burdensome for smaller businesses. Secondly, there was a lack of harmonisation in data requests from various stakeholders, leading to confusion and duplication of effort. The VSME aims to provide a simplified, proportionate, and standardised approach to sustainability reporting for SMEs, reducing the complexity and cost associated with the process.

What are the key features of the VSME?

The VSME features a modular structure, allowing for flexibility and scalability based on the size and reporting needs of the SME. It includes:

• Basic Module: The entry-level module for all SMEs, particularly micro-undertakings. It covers essential sustainability topics with simplified language and no materiality assessment required.
• Comprehensive Module: Builds upon the Basic Module, addressing likely data requests from business partners in the value chain and sustainable finance data points for lenders and investors.
• Narrative-PAT Module: Designed for SMEs with formalised sustainability policies, actions, and targets (PAT). It requires materiality assessment and reporting on material sustainability matters.

What are the benefits of using the VSME?

Using the VSME offers several benefits for non-listed SMEs:

• Reduced reporting burden: The simplified and standardised approach reduces complexity and time spent on reporting.
• Improved stakeholder communication: Consistent and comparable data strengthens transparency and trust with investors, lenders, and business partners.
• Access to financing: Enhanced sustainability reporting can improve access to sustainable finance options and attract investors focused on ESG performance.
• Enhanced reputation: Demonstrating commitment to sustainability enhances brand image and attracts environmentally and socially conscious customers.

How does the VSME address the information needs of financial institutions?

The VSME Comprehensive Module specifically addresses data points relevant to financial institutions, aligning with requirements under regulations like the SFDR and the EU Taxonomy. It ensures SMEs can provide information relevant to assessing their sustainability risk profile, enabling them to access bank loans and attract investors focused on ESG factors.

What are the key environmental disclosures in the VSME?

The VSME covers key environmental aspects relevant to SMEs, including:

• Energy and greenhouse gas emissions: Reporting on total energy consumption, breakdown by source (renewable/non-renewable), and estimated gross greenhouse gas emissions.
• Pollution: Disclosure of pollutants released to air, water, and soil, considering relevant EU legislation.
• Biodiversity: Information on sites owned, leased, or managed in or near biodiversity-sensitive areas and metrics related to land use.
• Water: Reporting on water withdrawal and consumption, including a breakdown for operations in areas with high water stress.
• Resource use, circular economy, and waste management: Data on total waste generated, breakdown by hazardous/non-hazardous waste, and waste diverted to recycling or reuse.

How does the VSME compare to the ESRS?

While the VSME draws inspiration from the European Sustainability Reporting Standards (ESRS), it is specifically tailored to the needs and capabilities of non-listed SMEs. The VSME adopts a simplified and more proportionate approach, requiring fewer disclosures and less detailed information compared to the comprehensive ESRS framework designed for larger companies.