Investors call for a credible sustainability reporting standard for small and mid-caps
In a critical stage of the negotiations on the Omnibus Simplification package, Eurosif, the European Fund and Asset Management Association (EFAMA) and Principles for Responsible Investment (PRI) join forces to call for a credible and proportionate voluntary sustainability reporting standard for companies with over 250 employees that will fall outside of the CSRD scope. This minimum voluntary set would allow financial institutions, including investors, to access meaningful sustainability-related information crucial for their investment decisions.
Why does it matter?
ESG data is essential for informed investment decisions and assessing sustainability risks. However, the current European Commissionâs proposal risks excluding many companies already reporting under the Non-Financial Reporting Directive (NFRD)/CSRD, creating data gaps and market fragmentation. In addition, the use of VSME as a basis for non-SME voluntary reporting is not fit for purpose. Designed for very small and micro-companies, the VSME lacks the granularity and reliability needed for reporting to larger companies and financial market participants as users of information. Its application as a value chain cap may further restrict the information available to investors.
Our recommendations
- For companies under 250 employees, to maintain voluntary reporting based on the VSME standard.
- For companies above 250 employees and out of the scope of the CSRD, to establish a voluntary standard for small and mid-caps, based on a subset of data points present in the revised ESRS. This standard should maintain mandatory but proportionate materiality assessment to ensure relevant information for users.
- For all companies outside the scope of CSRD, clarify the âvalue chain capâ to ensure that investors and financial market participants can request additional information for investment and/or engagement purposes.
What are the advantages?
A fit-for-purpose voluntary standard will help bridge the data gap, support sustainable finance, and ensure continued access to capital for growing European businesses, without adding burden to European reporting companies.
- For investors, enhancing comparability and readability between mandatory and voluntary reporting, thereby ensuring access to reliable, meaningful, decision-useful ESG data across a wide range of companies and their value chain.
- For companies, establishing a proportionate framework reducing ad-hoc data requests and encouraging growth and gradual transition toward mandatory sustainability reporting.
