First CSRD reporting standard finalised for SMEs

The European Financial Reporting Advisory Group (EFRAG) finalised the first European standard for small and medium-sized enterprises (SMEs) and sent it to the European Commission on 17 December 2024. The standard sets out simplifications for SMEs which prepare a voluntary sustainability report (known as voluntary reporting standards for SMEs, or VSME for short). The European Commission is likely to decide on the standard soon. The standard for listed SMEs required to report by the Corporate Sustainability Reporting Directive (CSRD, Directive (EU) 2022/2464) (reporting standards for listed SMEs, or LSME) is also in the final preparatory phase at EFRAG.

The CSRD requires listed SMEs to produce and publish a sustainability report for the financial years starting from 1 January 2026. We reported on the reporting obligation under the CSRD: Sustainability reporting under the CSRD: Adjusting size characteristics for companies and European Sustainability Reporting Standards (ESRS) 

EFRAG is preparing reporting standards for sustainability reporting on behalf of the European Commission. To specifically address the limited human, financial and organisational resources of SMEs, the CSRD requires the European Commission to issue specific standards for listed SMEs. At the same time, the European Commission is promoting the adoption of standards for non-listed SMEs. Non-listed SMEs do not fall within the scope of the CSRD, but they will still be indirectly affected by the reporting requirements under the CSRD, for example through enquiries from customers and business partners (trickle-down effect). They must therefore be able to provide information on certain sustainability aspects. Some non-listed SMEs may also decide to voluntarily prepare a sustainability report.

VSME and LSME standards

The European Commission and EFRAG are currently planning two standards for SMEs’ sustainability reporting:

• VSME standard: Non-listed SMEs who prepare voluntary sustainability reports are covered by the VSME standard (voluntary reporting standard for SMEs). The VSME standard defines lower reporting obligations for non-listed SMEs to encourage as many SMEs as possible to produce voluntary reports.
  
  In comparison to the reporting standards for large corporations, the VSME standard specifies significantly fewer data points for SMEs to report on. For example, the VSME standard requires much less information on the financial impact of climate risks. SMEs can limit their sustainability report to specific topics. In addition, the VSME standard does not require a materiality analysis for all topics (an analysis of the company’s impact on sustainability issues and vice versa), which saves a lot of effort in researching information. It is also possible to write parts of the sustainability report in the style of a yes/no list, since many questions are formulated very specifically. Many answers, in turn, require only numerical data. EFRAG has deliberately tried to simplify the language of the VSME standard even further and include additional guidance to encourage SMEs to engage with the standard.

• LSME Standard: By contrast, the LSME standard (reporting standard for listed SMEs) is intended for listed SMEs that are subject to reporting requirements under the CSRD.
  
  The LSME standard defines simplified requirements for SMEs compared to the reporting standards for large corporations. The reports do not need to be as detailed. Some information is voluntary, and many data points no longer apply. For example, information on significant positive impacts or financial opportunities is voluntary in the LSME standard (unlike the ESRS standard for large corporations). However, in order to meet the CSRD requirements, the materiality analysis and disclosure requirements for listed SMEs are stricter than for non-listed SMEs under the VSME standard.

Status of proceedings for the SME standards

After completing the public consultation, EFRAG adopted the draft VSME standard on 13 November 2024. On 17 December 2024, EFRAG forwarded the standard to the European Commission. A decision by the European Commission is expected soon.

EFRAG is currently evaluating the results of the public consultation on the LSME standard. In principle, they are looking for a quick decision on this, too.

Conclusion and outlook

Both the LSME standard and the VSME standard are set to apply starting from 1 January 2026, with a transition period until 1 January 2028 for the LSME standard. It is likely that the German legislators will also have transposed the CSRD into national law by then.

Furthermore, the German Council for Sustainable Development is currently working on an update of the German Sustainability Code to provide comprehensive support for SMEs in preparing CSRD reports. The publication is expected in 2025.

 

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