Recommendation offered by European Commission for optional, environmentally-focused business reporting standards to lessen financial stress on small and medium-sized enterprises (SMEs)

The European Commission has taken a significant step towards promoting sustainability among Small and Medium-Sized Enterprises (SMEs) with the introduction of a voluntary standard for sustainability reporting. This development, part of the "Omnibus I" simplification package adopted on February 26, 2025, aims to ease the burden on SMEs while providing them with opportunities for resilience, competitiveness, and access to sustainable financing.

The Omnibus I proposal includes a proposal for a standard for voluntary reporting that will serve as an "upper limit for the value chain." This means that SMEs, not subject to the Corporate Sustainability Reporting Directive (CSRD), can use this standard to provide sustainability information upon request, facilitating their interactions with large financial institutions and companies.

The European Financial Reporting Advisory Group (EFRAG) was commissioned by the European Commission to develop this standard. EFRAG has created the "Voluntary Sustainability Reporting Standard for Non-listed Small and Medium-sized Enterprises" (VSME Standard). This standard is intended to help SMEs meet sustainability reporting requirements without being subject to the CSRD.

SMEs can use voluntary sustainability reporting to better assess their own sustainability performance, contributing to their resilience and competitiveness. Moreover, by adopting this standard, SMEs can demonstrate their commitment to sustainability to potential investors and business partners, potentially facilitating access to sustainable financing.

The recommendation aims to make it easier for SMEs to provide sustainability information to large financial institutions and companies. The VSME Standard is also expected to serve as an interim solution for market demands until the delegated act on a voluntary standard is formally adopted.

The future standard for voluntary reporting is intended to protect SMEs and other companies not subject to the CSRD's reporting obligations from excessive information requests from their business partners in the value chain. It will serve as a limit, ensuring that SMEs are not overwhelmed with requests for sustainability information.

The Commission issued a recommendation for voluntary sustainability reporting for SMEs on July 30, 2025, and the standard for voluntary sustainability reporting is expected to be issued based on this recommendation. The Omnibus I proposal aims to save more than €6 billion in administrative burden by simplifying rules for sustainability reporting and EU investments.

In conclusion, the introduction of a voluntary standard for sustainability reporting by the European Commission is a significant step towards promoting sustainability among SMEs. This standard is expected to provide SMEs with opportunities for resilience, competitiveness, and access to sustainable financing, while easing the burden on these businesses.

Recommendation offered by European Commission for optional, environmentally-focused business reporting standards to lessen financial stress on small and medium-sized enterprises (SMEs)