The landscape of sustainability reporting is undergoing a transformative shift with the introduction of the Voluntary European Sustainability Reporting Standards (VSME).
This groundbreaking initiative is strategically designed to cater to non-listed SMEs within the European Union, forming a part of the broader EU sustainability directive. The VSME framework stands out by offering a flexible avenue for SMEs to voluntarily elevate their sustainability reporting practices.
This initiative is particularly crucial when these SMEs form part of the value chain of larger entities bound by stringent sustainability reporting mandates. Unlike their mandatory counterparts, VSME offers a dynamic approach, enabling SMEs to adopt sustainable business practices that resonate with their unique operational models.
Greenomy, a sustainability reporting platform, has offered a comprehensive guide to VSME ESRS.
In the dynamic sphere of sustainability reporting, the European Financial Reporting Advisory Group (EFRAG) plays a pivotal role, Greenomy said. It introduces two sets of simplified standards aimed at meeting the reporting needs of both Listed and Non-Listed SMEs. These standards are part of the broader European Sustainability Reporting Standards (ESRS) architecture, primarily devised for large corporations under the Corporate Sustainability Reporting Directive (CSRD) umbrella. The ESRS for Listed SMEs (LSME) enforce a mandatory disclosure regime. Conversely, the Voluntary ESRS for Non-Listed SMEs (VSME) propose a comprehensive framework. It’s designed to enhance the sustainability reporting endeavours of these entities, ensuring that they can meet the rising demand for sustainability data from larger corporations seamlessly.
The crux of EFRAG’s initiative is to simplify sustainability reporting for SMEs. This endeavour aims to address the increasing requests for sustainability data from larger entities to SMEs, thus alleviating the reporting burden while bolstering transparency. This initiative is mindful of SMEs’ limited resources and capabilities, ensuring that the transition to sustainable practices is inclusive, financially feasible, and meets proportionate sustainability criteria. This approach actively seeks to mitigate any potential trickle-down effects that could adversely impact smaller entities.
EFRAG is not just setting the standards but is also keen on fostering a participative environment. It plans to initiate a 120-day public consultation from January 2024, inviting stakeholders to engage, provide input, and refine the standards over the subsequent four months. This article delves deep into the nuances of the VSME, offering insights into the CSRD and ESRS. It also explores how these standards are pertinent to various types of business undertakings, ensuring readers are well-informed about the latest in sustainability reporting.
Understanding the VSME is incomplete without a recap of its foundational elements – the CSRD and the ESRS. The CSRD, a pivotal element of the EU Green Deal and Sustainable Finance Initiative, marked a significant leap in corporate reporting when adopted by the EU Parliament. It broadened the scope of sustainability reporting, now encompassing around 49,000 companies. It introduced the Double Materiality Assessment, mandating companies to report on both the financial risks posed by sustainability issues and their impact on society and the environment. Additionally, the CSRD brought about a mandatory assurance and auditing framework, enhancing the accountability of corporate reporting.
In tandem, the EFRAG has been instrumental in shaping the path of sustainability reporting. It devised the ESRS, serving as a structured roadmap for companies navigating the complex landscape of sustainability reporting. These standards guide entities in reporting their environmental, social, and governance (ESG) impacts, offering a structured and detailed approach.
While the VSME is voluntary, it is strategically structured to cater to the unique needs of non-listed SMEs. It encompasses three modules – the Basic module, the Narrative-Policies, Actions and Targets (PAT) module, and the Business Partners module. These modules are designed to ensure that the reporting is relevant, faithful, comparable, understandable, and verifiable, taking into account the specific activities and sector-specific issues of non-listed SMEs.
The VSME framework offers non-listed SMEs the flexibility to tailor their sustainability reporting. They can choose from four distinct options, each aligning with different strategic objectives and ranging from focusing solely on the Basic Module to adopting a comprehensive approach that includes all modules. This flexibility ensures that non-listed SMEs can navigate their sustainability reporting journey in a way that aligns with their operational realities and strategic goals.
For those eager to delve deeper into the intricacies of the VSME framework, the Greenomy Academy offers a VSME e-course. This platform is dedicated to professionals aiming to gain a profound understanding of ESG reporting and related disclosures. Enrolling in this course not only provides valuable insights but also leads to a Greenomy Academy certificate, showcasing one’s expertise in the field.
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