The European Financial Reporting Advisory Group (EFRAG) has unveiled proposed sustainability reporting standards for small and medium enterprises (SMEs) by releasing exposure drafts. This development signifies a crucial advancement in implementing a new sustainability reporting framework in Europe under the EU’s Corporate Sustainability Reporting Directive (CSRD).
The CSRD serves as a substantial revision to the 2014 Non-Financial Reporting Directive (NFRD), extending the requirement for sustainability disclosures to over 50,000 companies (up from approximately 12,000). It introduces more comprehensive reporting obligations related to company impacts on the environment, human rights, social standards, and sustainability-related risks.
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 in revenue in 2025, and listed SMEs in 2026.
EFRAG, primarily funded by the EU, received a mandate from the European Commission in June 2020 to prepare for new EU sustainability reporting standards (ESRS), covering SMEs classified as public-interest entities and those with securities traded in the EU. The organization was also tasked with developing voluntary sustainability reporting standards for non-listed SMEs. The exposure drafts include standards for public-interest SMEs (ESRS LSME) and voluntary standards for other SMEs (VSME).
The standards for public-interest SMEs include general sections outlining requirements, disclosures, policies, actions, and targets. They also feature specific sections detailing 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.
EFRAG underscores that the mandated sustainability standards aim to assist SMEs in accessing financing and facilitate the availability of standardized sustainability information.
Simultaneously, EFRAG has initiated a consultation on the exposure drafts, which will remain open until May 21, 2024.