There is a wealth of research, reports, surveys, and data all showing the massive importance of sustainability issues in customer decision-making.
A 2024 report from ‘The Round Up’ found that 78% of consumers feel sustainability is an important factor when shopping. Additionally:
- 55% are willing to pay more for eco-friendly brands
- 78% want to lead more sustainable lives
- 51% avoid products that they know are bad for the environment
This picture is very similar for those companies in business-to-business (B2B) markets. Research conducted by FleishmanHillard UK, in partnership with Opinium Research, showed that sustainability (ESG) considerations top the list of reasons for companies to seek a new B2B partner. Yet, 76% of B2B buyers say that organisations aren’t doing enough to communicate their ESG commitments.
This highlights the need for clear and effective sustainability reporting, but SMEs in particular may feel pressured to meet the sustainability expectations and agendas of larger companies, investors, banks, and consumers. Add in the challenge of reporting and, understandably, many choose to ignore the reporting.
However, sustainability reporting can offer significant benefits to SMEs, such as improved access to new customers, sustainable finance, enhanced reputation, and better risk and opportunity management.
What’s the solution?
- Focus on material issues: SMEs should prioritise reporting on the most material and relevant sustainability issues for their business. This targeted approach can make the reporting process more manageable and ensure that the information provided is meaningful.
- Engaging stakeholders particularly customers: Involving stakeholders, such as employees, customers, suppliers, and investors, in the sustainability reporting process can provide valuable insights and support.
- Use of technology: Leveraging digital tools and platforms can streamline data collection, management, and reporting. There are various software solutions available that can help SMEs automate and simplify their sustainability reporting processes.
- Training and education: Providing employee training and educational resources can help SMEs build the necessary expertise and understanding of sustainability reporting.
- Collaborating with industry associations like Made in Britain: Industry associations and networks can offer support, resources, and guidance to SMEs on sustainability issues. By collaborating with these organisations, SMEs can access best practices and peer support.
- Access to external support: SMEs can seek support from external consultants and advisors who specialise in sustainability reporting. These experts can provide tailored advice and assistance, helping SMEs navigate the reporting requirements.
- And last but certainly not least is a new set of simplified reporting standards such as those from the European Financial Reporting Advisory Group (EFRA), these can reduce the complexity and burden of reporting. Importantly these standards are tailored to the needs and capacities of SMEs, making it easier for report.
EFRAG voluntary sustainability reporting standard for non-listed SMEs
The European Financial Reporting Advisory Group (EFRAG) has recently introduced a new Voluntary Sustainability Reporting Standard for non-listed micro, small, and medium-sized enterprises (VSME).
While the European Sustainability Reporting Standards (ESRS) developed by EFRAG are part of the EU's Corporate Sustainability Reporting Directive (CSRD), UK companies can voluntarily adopt these standards to enhance their sustainability reporting practices. By using the EFRAG standards, UK SMEs can benefit from standardised sustainability information, which can improve their access to sustainable finance and business opportunities.
Additionally, adopting these standards can help UK companies align with international best practices and demonstrate their commitment to sustainability. Access the standard.
Overview of the VSME standard
The VSME standard is designed to provide a standardised set of sustainability information for non-listed SMEs, replacing the current multiple and uncoordinated questionnaires and ESG data requests. The standard is structured under two modules: the Basic Module and the Comprehensive Module. These modules are expected to fulfil a substantial part of the requests from business partners, such as banks, investors, and large corporates.
Key features
- Basic module: This module includes essential sustainability disclosures that are relevant to all SMEs and aims to provide a simple and standardised framework for reporting on ESG issues.
- Scope: Targets the essential sustainability aspects that are relevant to all SMEs, regardless of their industry.
- Content: Includes fundamental disclosures on environmental, social, and governance (ESG) issues. This module focuses on areas such as energy consumption, waste management, employee well-being, and community engagement.
- Purpose: Designed to be a straightforward and user-friendly framework that SMEs can easily adopt without extensive resources or expertise.
- Comprehensive module: This module includes additional disclosures that reflect the specificities of certain sectors it provides a more detailed set of information for SMEs operating in industries with unique sustainability challenges.
- Scope: Aimed at SMEs with more complex sustainability impacts or those operating in sectors with specific sustainability challenges.
- Content: Offers detailed disclosures that go beyond the basics, covering industry-specific issues such as resource extraction, supply chain management, and product lifecycle impacts.
- Purposes: Provides a more in-depth reporting framework for SMEs looking to showcase their comprehensive sustainability efforts to stakeholders.
- Simplification and standardisation: The VSME standard aims to reduce the burden on SMEs by standardising the sustainability information they report. This helps SMEs better access lenders, investors, and clients
- Supporting tools and guidance: EFRAG plans to complement the VSME standard with digital online tools, additional guidance, and complementary materials to ease its uptake by SMEs.
- Digital Reporting Platform: An online platform where SMEs can input and manage their sustainability data, generate reports, and share information with stakeholders.
- Templates and Checklists: Standardised templates and checklists to help SMEs ensure they are covering all necessary aspects of the VSME standard.
- Educational Workshops and Webinars: Training sessions to guide SMEs on the benefits and processes of sustainability reporting, helping them understand and implement the standard effectively.
Steps to take
- Understand the standard:
- Start by familiarising yourself with the EFRAG VSME standard, including the Basic Module and the Comprehensive Module.
- Identify which modules and specific disclosures are most relevant to your business operations and industry.
- Assess your current practices:
- Conduct an internal assessment of your existing sustainability practices and reporting processes.
- Identify gaps and areas where you need to collect additional data or improve your sustainability initiatives.
- Set up a data reporting framework:
- Establish a framework for collecting, managing, and reporting sustainability data.
- Assign responsibilities to team members for different aspects of the reporting process.
- Use digital tools:
- Leverage digital reporting platforms and software to streamline data collection and management.
- Consider tools that offer templates, checklists, and automated reporting features to simplify the process.
- Engage stakeholders:
- Involve key stakeholders, such as employees, customers, suppliers, and investors, in the sustainability reporting process.
- Gather their input and feedback to ensure the reported information is relevant and meaningful.
- Provide training and education:
- Invest in training and educational resources to build the necessary expertise within your team.
- Attend workshops, webinars, and online courses on sustainability reporting and the VSME standard.
- Report on material issues:
- Focus on the most material and relevant sustainability issues for your business.
- Ensure that your sustainability reports provide clear and concise information on these key issues.
- Review and improve:
- Regularly review your sustainability reporting practices and seek opportunities for improvement.
- Stay updated with any changes or updates to the EFRAG VSME standard and adjust your reporting accordingly.
- Communicate transparently:
- Be transparent about your sustainability efforts and challenges.
- Use your sustainability reports to communicate your progress, goals, and areas for improvement to stakeholders.
Benefits for SMEs
The VSME standard offers several advantages for SMEs:
- Enhanced credibility: By adhering to a recognised standard, SMEs can enhance their credibility and trustworthiness among investors, customers, and business partners.
- Access to sustainable finance: Improved transparency and reporting can attract sustainable finance opportunities, such as green loans or investments from socially responsible funds.
- Market differentiation: Showing a commitment to sustainability can differentiate SMEs from their competitors, potentially opening up new business opportunities and markets.
- Risk management: Systematic sustainability reporting helps SMEs identify and manage their environmental, social, and governance risks more effectively.
By implementing the VSME standard, SMEs can overcome the challenges of sustainability reporting and reap the associated benefits, such as improved access to finance, enhanced reputation, meeting the growing needs of customers and consumer expectations and better manage their risks and opportunities.
Professor Chris Harrop OBE is visiting professor in sustainable business at the University of Huddersfield Business School.
By Made in Britain 3 months ago | By Made in Britain