VSME Sustainability Reporting Standard

• EFRAG publishes the VSME standard for non-listed micro, small, and medium-sized businesses along with the VSME Basis for Conclusions
• EFRAG does not accept responsibility for the content's accuracy, or any direct, indirect, or incidental damages resulting from using the advice or guidance in this document.
• The information in this publication should not be used as a replacement for appropriately qualified professional services
• EFRAG's goal is to serve the European public by promoting European perspectives in financial and sustainability reporting
• EFRAG offers technical advice to the European Commission on developing European Sustainability Reporting Standards (ESRS)
• EFRAG seeks input from stakeholders and gathers data on European conditions to ensure the legitimacy of the standard-setting process, which relies on excellence, transparency, good governance, due process, public accountability, and thought leadership
• EFRAG is funded by the European Union via the Single Market Programme with participation from EEA-EFTA countries (Norway, Iceland, Liechtenstein) and Kosovo.
• The opinions voiced belong solely to the author(s)
• These opinions do not necessarily reflect the views of the European Union, the European Commission, or countries participating in the Single Market Programme
• The European Union, the European Commission, and countries in the Single Market Programme are not responsible

VSME Standard Objectives

• Intended to support micro, small, and medium-sized businesses by:
  • Helping to satisfy data needs from larger companies seeking sustainability information from their suppliers
  • Helping to satisfy data needs from banks and investors, thereby boosting access to finance
  • Improving the management of sustainability issues like pollution and workplace health and safety
  • Contributing to a more sustainable and inclusive economy
• Application is voluntary for businesses whose securities are not listed on a regulated EU market
• Directive 2013/34/EU defines small and medium-sized businesses based on balance sheet total, net turnover, and average employee count
• An undertaking qualifies as microenterprises if it does not exceed two of these thresholds:
  • €450,000 in balance sheet total
  • €900,000 in net turnover
  • average of 10 employees
• An undertaking qualifies as a small business if it does not exceed two of these thresholds:
  • €5 million in balance sheet total
  • €10 million in net turnover
  • average of 50 employees
• An undertaking qualifies as medium sized if it does not exceed two of these thresholds:
  • €25 million in balance sheet total
  • €50 million in net turnover
  • average of 250 employees
• Encouraged for utilization by undertakings outside the scope of the Corporate Social Reporting Directive (CSRD)
• This Standard mirrors the same sustainability issues as the ESRS for large undertakings, but is right-sized to account for the fundamental characteristics of micro, small and medium-sized organizations
• This Standard lacks legal authority, unlike the ESRS for large undertakings

Structure

• Includes two modules that undertakings can use to prepare a sustainability report:
  • Basic Module covers disclosures B1 and B2 and basic metrics (B3 to B11)
  • Comprehensive Module sets data points beyond B1-B11
• Paragraph 24 illustrates available options for sustainability reporting under this Standard when adopting modules
• Basic Module application is prerequisite for applying the Comprehensive Module.
• Appendix A, Defined terms defines the terms used in this standard

Sustainability Report Principles

• Sets requirements that allow the undertaking to provide relevant information on:
  • How it impacts people or the environment positively or negatively in the short, medium, or long term
  • How environmental and social issues affect the organization's financial standing, performance, and cash flow in the short, medium, and long term
• The undertaking must report information in a relevant, faithful, comparable, understandable and verifiable way
• Additional information may be needed to reveal sustainability issues prevalent in the undertaking’s sector or particular to the undertaking itself. This comprises accounting for Scope 3 GHG emissions
• The undertaking can supplement the metrics from the Basic and Comprehensive modules with more qualitative and/or quantitative data as needed, as per paragraph 10.
• Comparative information must be reported for the previous year, unless metrics are disclosed for the first time, then from the second year of reporting
• Certain disclosures pertain only to specific situations
• It is recommended the parent company prepares sustainability reports on a consolidated basis, inclusive of subsidiary information if the undertaking is part of a group
• Subsidiary undertakings are exempt from reporting if the parent undertakes sustainability reporting prepared on a consolidated basis
• If a sustainability report is to meet the requirements of large undertakings or banks requiring annual reporting, an annual report must be prepared
• The sustainability report should be prepared for the same period as the financial statements (if prepared)
• The undertaking can indicate that no changes have occurred in specific data points since the previous reporting year,referring to previously provided information
• The report’s primary goal is to advise potential and actual business counterparties
• The undertaking can make its sustainability report public, presenting it in a separate section of management report (if one exists)
• The undertaking may point to disclosures in other documents rather than duplicating information in its sustainability report so long as the documents are made available at the same time
• The sustainability report for reporting entities that also prepare financial statements must cohere with what is reported in their financial statements for the same period
• Information in the report should be presented in a way that clarifies the links to financial statements, utilizing relevant cross-references

Basic Module

• The undertaking will report on environmental, social, and business behavior challenges using disclosures B1–B11
• Metrics under Basic Modules B1 to B11 may integrate with disclosures by selecting from the Comprehensive Module
• Additional instruction on disclosures B1 to B11 is available in paragraphs 66 to 209.
• Basis for Preparation requires disclosing:
  • Which of the options has been selected
  • which disclosure was omitted
  • Whether the sustainability report is on an individual or consolidated basis;
  • In the case of a consolidated sustainability report the list of subsidiaries
  • the business's legal structure
  • NACE sector code(s)
  • size of the balance sheet (in Euro)
  • turnover (in Euro)
  • number of employees in headcount or full-time equivalents
  • country of primary operations and location of major asset(s)
  • geolocation of sites managed, leased, or owned
• The undertaking must give a summary of any certifications or labels related to sustainability it possesses.

Practices and Policies for a Sustainable Economy

• State if the undertaking has practices, policies or initiatives.
• State whether it has:
  • efforts to reduce the undertaking's water and electricity consumption, GHG emissions, or pollution
  • separate governance, social, and environmental policies
  • current efforts to improve working conditions
  • future plans to monitor policy execution
• These include both the undertaking’s reduction of negative impacts and its enhancement of positive impacts on both people and the environment towards a more sustainable economy.
• Appendix B includes a list of potential sustainability matters to address in this disclosure.
• Reports which cover the Comprehensive module shall supplement with data points in C2.

Environmental Metrics

• The undertaking will disclose total energy usage in MWh as well as in electricity and fuels, if the data is obtainable
• The undertaking will disclose its projected gross greenhouse gas (GHG) emissions in tons of CO2 equivalent (tCO2eq), taking into account Scope 1 and Scope 2 GHG emissions
• The undertaking will reveal its GHG intensity based on both its gross greenhouse gas (GHG) emissions and turnover
• The undertaking must disclose the pollutants it emits into the air, water, and soil in its operations, along with their corresponding amounts, if it is required to report pollutant emissions under environmental regulations or voluntarily using an Environmental Management System
• For sites it manages, rents, or owns close to or inside of a biodiversity sensitive area, the undertaking will reveal the figure and size (in hectares)
• The undertaking may reveal land-use metrics:
  • Total use of land (in hectares)
  • total sealed area
  • total nature-oriented area on-site and off-site
• The undertaking will divulge its total water withdrawal (i.e., the amount of water drawn into the boundaries of the body or facility) and present the amount of water withdrawn at sites in areas of high water-stress separately
• If the undertaking has production processes that use large amount water, it must indicate its 'water consumption'
• The undertaking must state its use of principles of circular economy an how it applies these principles.
• The undertaking will disclose:
  • the total annual waste production broken down by type
  • the total amount of waste diverted towards recycling or reuse
  • If functioning in a sector with significant material flows the annual mass-flow of relevant materials used

Social metrics

• Report the number of employees based on data points and full-time equivalent (FTE):
  • Contract type
  • gender
  • Country
• Turnover rate of employees must be disclosed by undertakings with 50 or more employees
• Information on recordable accidents and fatalities for employees must also be disclosed
• The undertaking will reveal information such as:
  • If national law guarantees minimum wage for compensation
  • The pay discrepancy percentage
  • Percentage of those covered by agreements of collective bargaining
  • The average amount of hours by the employees and their gender

Metrics Governance

• The undertaking must reveal the convictions and total fines incurred for corruption and bribery during the reporting period

Comprehensive Module

• Provides the information needs of the undertaking's business partners, e.g. banks, investors, and corporate clients and include the ones already in Basic Module
• Disclosures reflect financial market participants and obligations of the corporate client’s under relevant laws and regulations
• They mirror the knowledge that commercial partners require to evaluate the undertaking's sustainability risk profile
• The information is considered for use if relevant to the organization's business and organization. In the event of omission, that's assumed that doesn't apply
• Guidelines on disclosures C1 to C9 can be found in paragraphs 210 through 244