SME reporting: EBC contributes to EFRAG consultation on Sustainability Reporting Standards for large enterprises

In April 2021, the European Commission published its proposal for a Corporate Sustainability Reporting Directive (CSRD). The proposal identifies the European Financial Reporting Advisory Group (EFRAG) as technical advisor to the European Commission to provide draft European Sustainability Reporting Standards (ESRS).

EFRAG was requested by the Commission to start the technical development of these draft standards immediately, in parallel to the legislative process of the CSRD. This work was undertaken by the Project Task Force on European sustainability reporting standards (PTF-ESRS). EBC therefore works in coordination with SMEunited, who is a PTF-ESRS member while also chairing the SME cluster working on a separate SME reporting standard.

During the course of this summer, EFRAG ran a public consultation on the ESRS Exposure Drafts developed by the PTF-ESRS, with essentially Draft Sustainability Reporting Standards for large enterprises. During the drafting process, SMEunited had repeatedly voiced its concerns, as the draft standards do not take into account the trickledown effect on SMEs.

In response to the EFRAG’s public consultation, EBC underlined that, although these draft standards apply only to large enterprises according to the actual proposal of the CSRD, they will in practice impact SMEs. More specifically, EBC argued that the structure and length of the standards is too complex and long for construction SMEs to comprehend, let alone be able to use them for reporting. The draft standards for large enterprises should thus be reviewed to reduce negative effects on SMEs in the supply chain. As SMEs are not covered by the CSRD, information on the value chain should be less detailed to reduce the reporting burden for SME suppliers.

Any kind of reporting, no matter the legislative vehicle, will need to consider the trickle-down effect for SMEs, notably construction SMEs and crafts across the EU, which represent more than 99% of the companies making up the construction sector. Imposing on construction SMEs to report information they do not possess, or to engage in a reporting spree that would disrupt their activities with an additional and enormous bureaucratic workload, would be absurd.

As with financial reporting, non-financial reporting should primarily be a management tool for the entrepreneur himself. But this objective is completely absent from the draft standards, which are shaped for the needs of large actors. It is crucial to ensure that simplified, coherent and non-contradictory standards apply both for non-financial reporting (CSRD) and financial reporting (Taxonomy), especially for sectors where SMEs are abundant, as in construction.

The public consultation closed on 8 August. EFRAG will now assess the inputs received and continue its work on the draft standards, while SMEunited and EBC will keep monitoring this process to minimise the impact on SMEs.

The public consultation closed on 8 August.

To access the European Commission proposal for a Corporate Sustainability Reporting Directive (CSRD). click here