European Commission Issues Recommendation on Voluntary Sustainability Reporting Standard for SMEs

Strategic Insights -

The European Commission has recommended a voluntary sustainability reporting standard for small and medium-sized undertakings (SMEs) to address market demand and help them respond to information requests from financial institutions, large companies, and other stakeholders. The standard, developed by the European Financial Reporting Advisory Group (EFRAG), aims to provide a simple and standardized framework for SMEs to report on environmental, social, and governance (ESG) issues, thereby facilitating access to sustainable finance and improving resilience and competitiveness.

Key Takeaways:

  • The European Commission has issued a recommendation on a voluntary sustainability reporting standard for SMEs to address market demand and help them respond to information requests from financial institutions, large companies, and other stakeholders.
  • The standard, developed by EFRAG, aims to provide a simple and standardized framework for SMEs to report on ESG issues, facilitating access to sustainable finance and improving resilience and competitiveness.
  • The standard includes a basic module and a comprehensive module, with reporting against the basic module being a prerequisite for reporting against the comprehensive module.
  • The basic module is designed for micro-undertakings and small and medium-sized undertakings, while the comprehensive module is designed for undertakings with specific ESG reporting requirements.
  • The Commission encourages large corporates and financial intermediaries to apply the principle of proportionality when engaging with SMEs and to exercise restraint when requesting information from SME value chain partners.
  • The recommendation aims to limit the trickle-down effect of sustainability reporting requirements on SMEs in the value chain of larger undertakings.

Statistics:

  • The European Commission has recommended a voluntary sustainability reporting standard for SMEs.
  • The standard is developed by EFRAG and aims to provide a simple and standardized framework for SMEs to report on ESG issues.
  • The standard includes a basic module and a comprehensive module.
  • The Commission encourages large corporates and financial intermediaries to apply the principle of proportionality when engaging with SMEs.
  • The recommendation aims to limit the trickle-down effect of sustainability reporting requirements on SMEs in the value chain of larger undertakings.

Sources:

  • Commission Recommendation (EU) 2025/1710 of 30 July 2025 on a voluntary sustainability reporting standard for small and medium-sized undertakings.
  • Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting.
  • Directive 2013/34/EU of the European Parliament and of the Council of 26 June 2013 on the annual financial statements, consolidated financial statements and related reports of certain types of undertakings.
  • Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market.
  • Directive 2014/56/EU of the European Parliament and of the Council of 16 April 2014 amending Directive 2006/43/EC on statutory audits of annual accounts and consolidated accounts.