January 29, 2024

EFRAG approves draft voluntary standard for sustainability reporting

EFRAG Sustainability Reporting Board has unanimously approved a draft of the voluntary ESRS standard for non-listed SMEs. The draft will soon be open for consultation.

According to the Corporate Disclosures website, the board unanimously agreed on the draft, with minor changes related to information on Scope 3 targets and strengthening of language around social issues and due diligence assessments in the consultation document.

The final draft of the standard will soon be published and open for consultation for four months.

About EFRAG's role

The advisory expert group EFRAG (European Financial Reporting Advisory Group) has previously developed the new European standard for sustainability reporting for companies covered by the Sustainability Reporting Directive (CSRD).

The European standard for sustainability reporting, known as ESRS (European Sustainability Reporting Standard), was approved by the European Commission earlier this year.

Companies covered by the CSRD will report according to the ESRS from the 2024 financial year.

A total of three different European standards will be published:

  • ESRS - for companies covered by the CSRD
  • LSME ESRS - for listed SMEs covered by the CSRSD (Listed SME)
  • VSME ESRS - voluntary standard for other SMEs (Voluntary SME)

SMEs are indirectly covered by the CSRD

Non-listed SMEs may receive requests for sustainability information from customers, banks, investors, or other stakeholders.

Even though micro and non-listed small and medium-sized companies are outside the scope of the CSRD, EFRAG is developing simple, voluntary standards for use by non-listed SMEs (VSME ESRS).

The voluntary standard will enable non-listed SMEs to respond to requests for sustainability information in an efficient and proportionate manner, thus facilitating participation in the transition to a sustainable economy.

Why a simple standard?

The purpose of a separate voluntary standard for SMEs is to have a simple and standardized framework for reporting on sustainability-related information, as well as limiting the risk that disclosure requirements will trickle down to non-listed SMEs in the value chain of companies covered by the CSRD.

What about NSRS?

Many are probably wondering what will happen to the Nordic standard for sustainability reporting, NSRS.

The board of NSRS believes that the Nordic standard will play an important role for some time to come. This is based, among other things, on the progress of the new voluntary European standard. In addition, NSRS Entry Level is somewhat simpler and targets the very smallest companies.

The voluntary European standard for sustainability reporting will be submitted to the European Commission in November 2024, after which the proposal will be processed and approved by the European Commission. We therefore do not know when the final voluntary standard will be adopted.

NSRS is still the only reporting standard available on the market for SMEs until this. Companies that want to report on sustainability today can therefore use NSRS, as the new voluntary standard from EFRAG is based on NSRS. The transition to a European standard will therefore also be smooth.

The most important thing about sustainability reporting is to get started as soon as possible. NSRS gives companies the opportunity to get started now, rather than waiting for the European standard to be approved.

Foto: JESHOOTS.COMUnsplash

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