EFRAG public consultation and field test on the VSME standard: our experience

At the start of the year, we decided to engage with a highly topical project: the testing and application of the new VSME (Voluntary Small and Medium Enterprise) European sustainability reporting standard. This standard is designed specifically for SMEs as a scaled-down version of the ESRS (European Sustainability Reporting Standards), which are required by the European CSRD (Corporate Sustainability Reporting Directive). The ESRS are currently being developed by EFRAG (European Financial Reporting Advisory Group) under the mandate of the European Union.

Our involvement in this initiative reflects our commitment to align with leading sustainability practices and to demonstrate our dedication to transparency and accountability in environmental and social issues. As we facilitate implementation of the VSME standards, we aim not only to comply with regulatory expectations but also to drive meaningful change within our operations and our community.

The invitation to join the public consultation and field test launched by the EFRAG standard-setting body came to us from Prof. Zambon, Secretary General of OIBR (Italian Business Reporting Body), following the recognition we received last year as finalists in the Oscars for Sustainability Reporting 2023, a prestigious initiative taking place every year at the Italian Stock Exchange.

Accepting this new challenge was not easy due to the complexity and commitment required of us in this first half of the year to write the new edition of our Integrated Report. However, as a Benefit Corporation, we have enshrined in our articles of association the task of promoting sustainability culture as one of our common-benefit purposes. We were therefore pleased – and somewhat apprehensive – to take on the arduous task of drafting a VSME-compliant sustainability statement mockup, and to comment on the adequacy of disclosure and data points, thereby actively contributing to rewriting the rules of official regulation that is driving industry change.

Pros and cons of the VSME standard

Founded as an innovative startup, Way2Global is used to venturing beyond its comfort zone, taking on new challenges with drive and determination. Every experience makes us more resilient and better prepared to overcome subsequent obstacles. Compliance with the new VSME sustainability standard is therefore a further development for us, which we have enthusiastically welcomed.

Taking part in the field test on the VSME standard draft allowed us to identify three strengths and three critical issues concerning the new regulation, as already shared during the webinar “VSME: the EFRAG voluntary standard for sustainability reporting by SMEs – Challenges, critical issues and first experiences” organized last April by the OIBR Foundation in collaboration with EFRAG, the Italian National Council of Chartered Accountants (ODCEC) and the Italian Accounting Body (OIC).

Let us start with the critical issues in order to directly address the main challenges related to this standard and to make it easier to understand for those approaching it for the first time:

• Lack of explanation of key concepts: Certain concepts, such as double materiality, which we at Way2Global have been practising for some time, may be unfamiliar to other companies. We therefore suggested that EFRAG supplement the guidelines with more detailed explanations and practical examples to make them easier to understand.
• Excessive burdens for SMEs: The VSME requires assessment of the financial impact of material topics in the short, medium and long term, and rigidly defines these time frames, a requirement that can be overly burdensome for small companies already navigating the complexities of the current international environment.
• Inconsistent or unrepresentative disclosure requirements: The VSME standard sometimes stipulates disclosure requirements that appear to be inconsistent and/or unrepresentative of the aspects requiring certification. This improvable aspect concerns, on the one hand, an excessive emphasis on certain requirements, such as quantification of water withdrawal and consumption, and, on the other hand, poor representation in selection of certain criteria, such as the number of trainees. The latter, for example, cannot be considered an exhaustive criterion to adequately reflect company policies for work-life balance or initiatives aimed at facilitating the entry of young people into the labour market.

The effort required to overcome the challenges of fulfilling the disclosure requirements for the draft is more than outweighed by the following three advantages which, for us at Way2Global, make a strong case for the VSME standard:

• Scaled-down standards for small enterprises. We are grateful to EFRAG for developing a standard that requires far fewer than the 1,100 datapoints of the full ESRS. The VSME version, with only 28 reporting requirements, is entirely manageable for SMEs, making the compliance process very accessible.
• Integration into value chains. VSME is a welcome attempt at standardization by EFRAG to simplify compliance for SMEs. We at Way2Global, as a small company incorporated in the value chains of large companies and multinationals, are also required daily to answer countless different questionnaires, such as those from Ecovadis, Open Es and Synesgy. Adoption of the VSME standard by banks, investors and corporate clients could greatly simplify these tasks.
• Standardization of European legislation. The development of the VSME standard is an important step toward standardization in an area where there is currently a proliferation of disparate norms and standards. Standardized criteria across Europe would facilitate the reporting of ESG impacts, making the process easier and more effective for all stakeholders involved.

These important benefits underscore our great satisfaction with the VSME standard and lead us to express our deep gratitude for the opportunity to have contributed to fine-tuning the standard to the actual needs of SMEs.

How to prepare for the new VSME standard

Many fear the new reporting standards, but our experience at Way2Global shows that VSME is perfectly manageable for any SME. The prerequisites for their effective application are passion, continuous training and constant dialogue.

Passion for sustainability: At Way2Global, our dedication to sustainability drives us to champion it internationally, promoting it everywhere around the world not only through our signature projects, but also through our translation services. We translate Sustainability Reports, Integrated Reports, Non-Financial Statements (NFSs) and other crucial reports that help companies effectively communicate ESG impacts.

Ongoing training: Training is a fundamental cornerstone of our translation agency and the only way to stay up to date in a rapidly changing world. This is why I personally completed a Master’s degree in Sustainability Reporting in order to upgrade my qualification as Chief Value Officer, deepening my understanding of CSRD and developing the necessary skills to draft ESRS-compliant reports.

Continuous dialogue and discussion: We have navigated the challenges of the new VSME standard by maintaining an open dialogue and ongoing discussion with sustainability reporting experts and other professionals who, like us, have decided to accept this challenge. Continuous dialogue is fruitful and vital to refining our practices and ensuring adherence to the new standards.

Reporting according to the new VSME standard is not only feasible for an SME, but is a necessary and forward-looking choice. I therefore conclude with an appeal to all SMEs: Do not hesitate to report sustainability in accordance with the new standards. Your stakeholders, your business and the whole world will appreciate your commitment.