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Introduction

Author

Shel

Objective

The goal of the VSME standard is to support micro, small and medium-sized enterprises in:

  1. fulfilling requests from larger companies requesting for sustainability information from their suppliers;

  2. fulfilling requests from banks and investors, which facilitates access to finance;

  3. improving the management of the sustainability issues (environmental and social challenges) that they face in order to support their competitive growth and enhance their resilience; and

  4. contribute to a more sustainable and inclusive economy.

This standard is voluntary and applies to companies that are not listed in the European Union .

Article 3 of Directive 2013/34/EU categorises SMEs based on their balance sheet total, their net turnover, and the number of employees in a given financial year. The three categories are defined as follows:

  1. Micro enterprises:

    1. €450,000 in balance sheet total;

    2. €900,000 in net turnover; and

    3. an average of 10 employees.

  2. Small enterprises:

    1. €5 million in balance sheet total;

    2. €10 million in net turnover; and

    3. an average of 50 employees.

  3. Medium enterprises:

    1. €25 million in balance sheet total;

    2. €50 million in net turnover; and

    3. an average of 250 employees.

The VSME standard covers the same sustainability issues covered in ESRS, but takes into account the fundamental characteristics of these companies.

Structure

This standard contains 20 disclosures, categorised into two modules:

  1. Basic module

    This module is targeted towards micro-enterprises and acts as a minimum requirement for SMEs. It contains 11 disclosures, categorised into four:

    1. General information (B1 and B2)

    2. Environmental metrics (B3 - B7)

    3. Social metrics (B8 - B10)

    4. Governance metrics (B11)

  2. Comprehensive module

    This module contains a total of 9 disclosures. These disclosures contain information that is likely to be requested by banks, investors, and corporate clients. This is in addition to the information contained in the basic module. These disclosures reflect the information needed by business partners, to assess the sustainability risk profile of the company, e.g. as a (potential) supplier or a (potential) borrower. The 9 disclosures are categorised as follows:

    1. General information (C1 and C2)

    2. Environmental metrics (C3, C4)

    3. Social metrics (C5, C6, C7)

    4. Governance metrics (C8, C9)

Companies have two options when preparing their sustainability reports using the VSME standard. They can either choose to use the basic module, or use both the basic and comprehensive module. Thus, the basic module acts as prerequisite for using the comprehensive module.

Principles for the preparation of the sustainability report

The requirements set out in this standard allow a company to provide information on:

  1. how it has had or is likely to have a positive or negative impact on people or on the environment; and

  2. how environmental and social issues have affected or are likely to affect its financial position and cashflows in the short-, medium-, and long-term .

An impact refers to the effect an organisation has or could have on the economy, environment, and people, including effects on their human rights, as a result of the organization’s activities or business relationships. The impacts can be actual or potential, negative or positive, short-term or long-term, intended or unintended, direct or indirect, and reversible or irreversible. These impacts indicate the organization’s contribution, negative or positive, to sustainable development. The impacts on the economy, environment, and people are interrelated.

The organization’s impacts on the environment refer to the impacts on living organisms and non-living elements, including air, land, water, and ecosystems. An organization can have an impact on the environment through, for example, its use of energy, land, water, and other natural resources.

The organization’s impacts on people refer to the impacts on individuals and groups, such as communities, vulnerable groups, or society. This includes the impacts the organization has on people’s human rights. An organization can have an impact on people through, for example, its employment practices (e.g. the wages it pays to employees), its supply chain (e.g. the working conditions of workers of suppliers), and its products and services (e.g. their safety or accessibility).

Similar to the ESRS, this standard requires that information disclosed is relevant, faithful, comparable, understandable and verifiable (see chapter 2 of ESRS 1).

The company can complement the disclosure requirements in the basic and comprehensive modules, with additional information (metrics and narrative disclosures) not provided for in the modules. The additional information to be provided depends on the activities the company engages in and the sector it operates in. A list of key sustainable issues to be considered can be found in Appendix B of this standard (page 56).

Except for metrics disclosed for the first time, the company should provide comparative information in order to enable users understand trends and assess performance over time. Comparative information should be provided from the second year of reporting.

❗The information required in each of the disclosures should only be disclosed if the company considers it “applicable”. Omission of a disclosure implies that it is not applicable for the company.

If the reporting company has subsidiaries, it should prepare its sustainability report on a consolidated basis, i.e the information it discloses should include that of its subsidiaries. Consequently, these subsidiaries are exempted from reporting.

The sustainability reporting period should be consistent with the financial reporting period. If the reporting company prepares its financial statements annually, the sustainability statement should also be prepared annually. If information reported in the previous year does not change, the reporting company should disclose this and refer to the data point disclosed in the previous year. If the sustainability report is prepared to meet the needs of a large company or bank that require an update annually, it should be prepared annually.

The main goal of a sustainability report prepared using the VSME standard is to inform actual or potential business counter parties. If the company decides to disclose the report publicly, it should present it in a separate section of the management report (if one exists) or as a separate document.

To avoid duplication, the company should refer to information disclosed in other reports or documents, if they are available at the time of publishing the sustainability statement.

The company may omit classified or sensitive information from the sustainability report. If it chooses to do so, it should state that this is the case under disclosure B1.

Lastly, if the company also prepares financial statements, the sustainability report should match the financial statements for the same period and clearly show how the two are connected, for example by using cross-references.


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Footnotes

  1. The European Union defines SMEs based on staff numbers and economic weight, with a medium-sized company having up to 250 employees, a turnover of up to €50 million, and a balance sheet total of up to €43 million.↩︎

  2. A “non-listed” SME refers to a small or medium-sized enterprise (SME) whose securities are not traded on a regulated market, meaning it’s not publicly traded on a stock exchange.↩︎

  3. This is the double materiality concept introduced in chapter 3 of ESRS 1 (section 3)↩︎