A Short Guidance for SME Sustainability Reporting at the EU Level

Abstract

Environment, Social and Governance (ESG) related regulations such as the Non-Financial Reporting Directive (NFRD) or the upcoming Tax­onomy Regulation of the European Union (EU) combined with the Corporate Sustainability Reporting Directive (CSRD) had and will have a lasting impact on various market participants including small and medium-sized enterpris­es (SMEs). Among these market participants, SMEs face difficulties in comply­ing with sustainability reporting due to limited resources and the absence of SME-specific guidelines. To address this issue, a framework for SME sustain­ability reporting in the EU is proposed in this study. The framework consists of a seven-step process that helps companies and stakeholders prioritize rele­vant sustainability topics. The proposed framework is easy to implement and cost-effective, considering the unique characteristics and capabilities of SMEs. The study targets managing directors and decision-makers of German SMEs to assist them in preparing their sustainability reports. The minimum content elements for SME sustainability reporting include general disclosures, climate change, own workforce, and materiality assessment. The European Financial Reporting Advisory Group (EFRAG) plans to provide a digital questionnaire for SMEs to gather the necessary information. Proactive sustainability reporting can help SMEs improve stakeholder relations and optimize their internal pro­cesses, leading to competitive advantages and cost savings. However, it is im­portant to note that authenticity, high quality, and transparency in disclos­ing sustainability aspects are crucial to avoid reputational damage resulting from greenwashing.