ESG Guide

Market Acceptance

The VSME has been designed through extensive outreach and engagement with stakeholders to ensure its acceptance by both users (e.g., business partners) and preparers (e.g., SMEs). The goal is for business partners to adopt the VSME in place of multiple questionnaires, streamlining the process of gathering sustainability data from SMEs.

Public Consultation Feedback

Between January 22 and May 21, 2024, EFRAG conducted a public consultation on the Exposure Draft of the VSME. The consultation received significant input from a wide range of stakeholders, including preparers and users, who supported the VSME as a simplified reporting tool. Recommendations for additional simplifications were incorporated into the final standard.

Online Platform and Digital Tools

Stakeholders expressed a preference for the VSME to be available as an online reporting template. The development of a repository where SMEs can populate online templates, accessible to banks and other counterparties, would help realize the full benefits of the VSME. EFRAG encourages the European Commission and Member States to develop such platforms, with EFRAG potentially playing a coordination role to ensure consistency.

Simplified Approach

To ease the reporting process for SMEs, the VSME replaces the traditional materiality analysis with an "if applicable" principle. This approach guides SMEs by pre-defining circumstances that trigger disclosure, making the standard more user-friendly and aligned with the capabilities of SMEs.

Modularity and Simplified Language

The VSME employs a modular structure and simplified language to cater to the diverse nature of SMEs, ranging from micro-enterprises to medium-sized businesses. It consists of an entry-level Basic Module with 11 disclosures and a Comprehensive Module with 9 additional disclosures, allowing flexibility and progression in reporting.

Confidentiality Considerations

Addressing concerns from SME associations about confidentiality in publishing information, EFRAG clarified that the primary function of the VSME report is to inform business counterparties through bilateral exchanges of information, though it also supports those who wish to publish their reports.

Objective and Applicability

The VSME is a voluntary standard intended for non-listed SMEs, including micro-enterprises. It aims to help these businesses manage sustainability challenges, improve competitiveness, and contribute to a sustainable economy.

Standard Structure

The VSME comprises two primary modules:

Basic Module Explained

This video provides a detailed explanation of the Basic Module in the VSME standard, covering the key disclosures and how SMEs can implement them.

Comprehensive Module Explained

This video explores the Comprehensive Module of the VSME standard, providing detailed insights into the additional disclosures and how they complement the Basic Module for more advanced sustainability reporting.

Preparation Principles

SMEs are encouraged to report information that is relevant, faithful, comparable, understandable, and verifiable. The standard allows flexibility, enabling SMEs to include additional information pertinent to their specific circumstances or sector.

Guidance and Appendices

The standard provides detailed guidance for each module to assist SMEs in preparing their sustainability reports. It also includes appendices with defined terms, a list of potential sustainability issues, and background information to aid financial market participants in understanding the reported data.

Participation and Demographics

EFRAG received 311 responses to the online questionnaire and 22 additional comment letters from associations, standard setters, and authorities. Responses represented a broad European perspective, with participants from various countries and sectors.

Requests for Online Tools and Ecosystem

Both preparers and users emphasized the need for an online platform and additional digital tools to simplify and guide the reporting process for SMEs. In response, EFRAG's Sustainability Reporting Board (SRB) outlined plans to develop implementation guidance documents, including templates, guidelines, and examples to assist SMEs.

Simplification of the Standard

Stakeholders highlighted the complexity of the Narrative-Policies, Actions, and Targets (PAT) module, leading to its deletion. Concerns were particularly raised about disclosures related to material sustainability matters and management of these matters, which were deemed overly complex and not essential by banking associations.

Materiality Principle Concerns

Feedback indicated significant concerns regarding the materiality principle, with stakeholders finding materiality analysis too complex, time-consuming, and costly for SMEs. Suggestions included providing sector-specific guidance or predefined materiality assessments to alleviate the burden on SMEs.

Renaming of Modules

The Business Partners module was renamed to the Comprehensive module to better reflect its purpose and content, addressing feedback that the original name did not clearly convey the module's scope.

Additional Data Points for Financial Institutions

Banks requested the inclusion of additional data points to meet their information needs. After consultations, four data points were added to the Basic and Comprehensive modules, while others were deemed unnecessary and excluded.

Detailed Feedback on Specific Disclosures

Stakeholders provided input on various disclosures, leading to clarifications and adjustments. For example, guidance was added to facilitate reporting on water consumption, and the disclosure on workforce characteristics was refined to address concerns about definitions and applicability.