ESRS and SMEs: The roadmap to navigate corporate sustainability

In an era where the global economy is steering towards eco-sustainability, small and medium-sized enterprises (SMEs) find themselves at the heart of a revolution demanding greater transparency and accountability in terms of social and environmental impacts. The Corporate Sustainability Reporting Directive (CSRD) marks a turning point, mandating SMEs to draft a sustainability report that is not just a formality but a strategic instrument.

Faced with this change, entrepreneurs are at a crossroads: simply comply with legal obligations or seize the opportunity to redefine their business sustainably. The transition to sustainability is no longer a question of if, but of how and when.

In this context, the European Financial Reporting Advisory Group (EFRAG) emerges as a key ally for SMEs, introducing voluntary standards aimed at guiding entrepreneurs on the path to reporting. The Voluntary Standards for Small and Medium-sized Enterprises (VSME) provide a tailored framework, allowing them to integrate sustainability into their business models in a gradual and structured manner.

By adopting these voluntary standards, SMEs can gradually meet the reporting needs required by the CSRD, gaining greater credibility and trust from stakeholders, as well as opening up new market opportunities and access to capital.

The message is clear: sustainability is an inexorable march towards the future. For SMEs, it's time to embrace this change, choosing to transform sustainability reporting from mere compliance to a lever for innovation and growth.

What are the ESRS and how do they apply to SMEs?

The European Sustainability Reporting Standards (ESRS) are a set of principles designed to guide companies in reporting sustainability information. For unlisted SMEs, the ESRS manifest in the document VSME ED, providing a voluntary framework for reporting.

Through voluntary standards, SMEs can report on aspects such as resource use, greenhouse gas emissions, biodiversity, and other environmental and social factors relevant to their activities. The main goal is to support SMEs in managing sustainability issues, improving their resilience and competitiveness, and facilitating access to financing.

VSME Modules

The VSME is comprised of three modules:

1. Base Module: Including information on energy, emissions, pollution, resource use, social aspects like workforce and business conduct. It's the minimum reporting level for SMEs.

2. Narrative Module - PAT (Policies, Actions, Targets): Aimed at SMEs that have formal sustainability policies and targets.

3. Business Partners Module: Focuses on aspects generally required by financiers and clients, such as the management of specific risks and sustainability performance.

Why is it important for SMEs?

SMEs are an essential part of the economy and often part of the supply chain of large companies. Reporting according to voluntary ESRS can improve their credibility and reputation, as well as respond to the sustainability data requests of their business partners and financiers.

How can SMEs apply the ESRS?

To apply the ESRS, SMEs need to:

- Assess their value chain and identify relevant sustainability aspects.

- Choose the VSME module or modules that best fit their needs.

- Gather and analyze the data needed for the information required by the chosen module.

- Prepare a sustainability report that clearly and transparently communicates the social and environmental impacts.

Steps for Reporting

1. Impact and Relevance Assessment: Determine the relevant environmental and social impacts and their financial significance for the company.

2. Report Drafting: Use the modules provided by the VSME to document relevant information.

3. Communication and Updating: Publish the report in an accessible manner and ensure it's updated annually.

Challenges and Opportunities

Challenges:

- SMEs might have limited resources to collect and analyze sustainability data.

- The complexity of requirements and technical terms can be an obstacle.

Opportunities:

- Improving customer relations and opening up to new markets.

- Competitive advantage and increased business resilience.

The journey towards sustainability is not without challenges, but for SMEs that choose to adopt the ESRS through the VSME ED, the horizon broadens. Sustainability becomes a competitive advantage, a shared commitment to innovation, and a promise of sustainable and responsible growth that enriches not just the enterprise but the entire economic and social ecosystem in which it operates.