Companies concerned
At the end of 2024, EFRAG (European Financial Reporting Advisory Group) published the EU VSME standard. It's a voluntary standard for slim ESG reporting for SMEs under the CSRD (Corporate Sustainability Reporting Directive). This is relevant for SMEs with up to 250 employees in terms of the trickle down effect that bigger companies or lending banks falling into the scope of the CSRD can request ESG data from their value chain partners.
However, the standard - or more precisely, an upcoming new version based on the VSME - may also become relevant for a great portion of the bigger companies themselves (250-1000 employees). This is because the EU Commission wants to simplify (or rather: deregulate) sustainability reporting with the current Omnibus initiative. According to this, the threshold under CSRD for reporting companies is to be raised from 250 to 1000+ employees (and turnover over 50 million or balance sheet total over 25 million), so that those bigger companies are not directly affected, but only by the trickle down effect making VSME sufficient. Furthermore, under the Omnibus initiative the CSDDD (Corporate Sustainability Due Diligence Directive) is to be updated and would require large companies with 1000+ employees to demand data from their smaller 1st tier suppliers in line with the VSME standard.
B3 and C3 most relevant VSME content, preferably incl. scope 3 and °C impact
According to the VSME standard, various ESG data should be collected in addition to GHG emissions. As this is a voluntary standard and users can assess for themselves whether something is relevant (“if applicable” principle), the premise on average- especially for SMEs - should initially be sufficient to consider only climate issues as relevant, i.e. “B3 Energy and greenhouse gas emissions” (basic module) and “C3 Greenhouse gas reduction and climate transformation” (comprehensive module). After all, we are facing a climate crisis and the risk of crossing irreversible tipping points very soon. If you have more ESG figures directly available, of course include that. Otherwise, no need. The effort involved in preparing everything in advance does not seem entirely proportionate. However, further ESG issues can/should be integrated over time upon request of stakeholders such as large company clients or lending banks, so no over-engineering but ESG-reporting in a demand-based way. And of course, depending on the sector, further data points might also be relevant initially.
When reporting on B3, a holistic approach including scope 3 emissions is strongly recommended, but only upstream emission which are of main interest for data requesting stakeholders to get deeper insights into their value chains. So no proactive need for downstream.
Regarding C3 it is important to understand that you can have a good or bad Net zero strategy. A bad strategy would be doing business as usual for several years to come and decarbonize only later on, so you would become climate neutral at some point but would emit a lot on the way. So it's not only about becoming climate neutral but especially about the total emissions on the way there. Thus, C3 should be rounded off with a temperature metric, i.e. the planned measures of the decarbonization strategy (transition plan) are evaluated in terms of their °C impact. This takes into account the required alignment with 1.5 °C in accordance with the Paris Climate Agreement formulated in CSRD/CSDDD. SMEs and small mid-caps can thus position themselves as proactive partners to their relevant stakeholders who can demand data in their value chains regarding their transition plans. Irrespective of this, a °C KPI forces you to focus on the most climate-effective and economical measures, thus it strengthens innovation capabilities and resilience to better master future challenges while saving money in the medium term. Last but not least, 1.5 °C unfortunately no longer seems realistic, therefore 1.7 °C is better suited as a rather ambitious and still realistic target for C3.
