Three major investor bodies have urged European Union policymakers to rethink their plans for getting smaller companies to disclose sustainability information.
As part of its current drive to make Europe more business-friendly, the European Commission wants to remove a requirement for firms with fewer than 1,000 employees to comply with the Corporate Sustainability Reporting Directive (CSRD).
It will instead develop a voluntary reporting standard for those firms, based on an existing framework known as VSME, which was designed for non-listed micro, small and medium-sized businesses.
But the European Fund and Asset Management Association (EFAMA), Europe’s sustainable investment forum (Eurosif), and the Principles for Responsible Investment (PRI) have joined forces to argue that the VSME standard “is not adequate for larger companies, including small and mid-caps”.
“While appropriate for very small businesses, it does not capture the sustainability profile of larger companies, as it lacks the granularity, consistency, and reliability that investors and other sustainability information users need for financing purposes,” the trio said in a letter to the Commission.
Instead, they are calling for a new voluntary standard to be developed that “would allow financial institutions, including investors, to access meaningful sustainability-related information crucial for their investment decisions”.
The standard should be based on the same European Sustainability Reporting Standards (ESRS) that underpin CSRD’s mandatory disclosure requirements, but be simpler, they said.
The ESRS are in the final stages of being redesigned to make them easier for companies and investors to use. A six-week consultation on those revisions closes at the end of September.
Efforts to improve VSME reporting
Last week, a senior official at the trade association FoodDrinkEurope revealed plans to roll out a reporting tool to help smaller firms report meaningfully against the VSME.
Katrin Heeren, the group’s director of environment and sustainability, said it was working closely with the EU’s advisory body to ensure the tool – which is suitable for companies across different sectors – was fully aligned with the VSME standards.
She said it would include training to help companies “understand why it is important to consider the sustainability questions”.
Warnings over CSRD scope
In their letter, EFAMA, Eurosif and the PRI also warned that the Commission’s proposed cuts to CSRD would “lead to further fragmentation of the European capital markets, reduced value chain transparency, and significant gaps in the availability of financing investment-relevant decision-useful information”.
Under the current plans, even some companies covered by CSRD’s predecessor, the Non-Financial Reporting Directive, would be exempt from reporting on sustainability topics.
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