EFRAG releases exposure drafts for EU sustainability reporting standards for SMEs

EFRAG released exposure drafts of EU sustainability reporting standards for SMEs under the Corporate Sustainability Reporting Directive, covering mandatory standards for public-interest SMEs and voluntary standards for non-listed SMEs. The standards, with consultation open until May 21, 2024, advance Europe's expanded disclosure regime, signalling reporting trends relevant to Indian SMEs in EU supply chains.

The European Financial Reporting Advisory Group (EFRAG) released exposure drafts of proposed sustainability reporting standards for small and medium enterprises (SMEs) under the EU's Corporate Sustainability Reporting Directive (CSRD). The CSRD is a substantial revision of the 2014 Non-Financial Reporting Directive, extending sustainability disclosure requirements to over 50,000 companies, up from approximately 12,000. The CSRD came into effect at the beginning of 2024 for large public-interest companies with over 500 employees, followed by companies with more than 250 employees or 40 million euro revenue in 2025, and listed SMEs in 2026.

Public-interest SMEs and other SMEs are affected through two sets of standards: mandatory standards for public-interest SMEs (ESRS LSME) and voluntary standards for other SMEs (VSME). The standards include general sections on requirements, disclosures, policies, actions, and targets, plus specific environmental, social, and business conduct metrics. Environmental disclosures encompass energy consumption, Scope 1, 2, and 3 emissions, financial effects from climate risks, and information on pollution, microplastics, water consumption, and biodiversity impacts, affecting listed SMEs and SMEs with EU-traded securities.

SMEs should review the exposure drafts and participate in EFRAG's consultation, which remains open until May 21, 2024. Listed SMEs should prepare for CSRD reporting obligations beginning in 2026, while non-listed SMEs can consider the voluntary VSME standards to access financing and provide standardised sustainability information. SMEs in EU value chains should monitor finalisation of the ESRS LSME and VSME standards and assess readiness for environmental, social, and business conduct disclosures including Scope 1, 2, and 3 emissions.

Key figure — Consultation deadline: May 21, 2024