The sustainability and ESG landscape is undergoing major changes that are impacting not only large companies, but also gradually small and medium-sized enterprises (the “SMEs“). The European Union has introduced two key documents – the Voluntary Sustainability Reporting Standard for Non-listed SMEs (the “VSME“) and the Regulation on Transparency and Integrity of Environmental, Social and Governance (ESG) rating activities. In the following article, we give you an overview of the changes introduced by this new legislation and how they may affect business.
Voluntary Sustainability Reporting Standard for Non-listed SMEs (VSME)
Until now, the non-financial reporting obligation has mainly concerned large companies meeting the criteria set out in the CSRD[1]. Small and medium-sized enterprises whose securities are not traded on a regulated market are exempted from this obligation. Nevertheless, in practice they are increasingly faced with requests for ESG disclosures, especially from business partners or banks.
The European Financial Reporting Advisory Group (EFRAG) therefore issued a voluntary standard VSME[2] in December 2024 to help SMEs with ESG reporting. The standard covers three main areas of ESG – environmental (E), social (S) and corporate governance (G). Businesses have a choice between:
- Core module that contains key information on sustainability;
- Comprehensive module that provides more detailed data depending on the sector of the company.
The VSME also replaces uncoordinated questionnaires and individual requirements from different entities, reducing the administrative burden on businesses and facilitating access to sustainable finance. As a result, businesses can communicate their sustainability activities more effectively and gain a competitive advantage in the market.
EFRAG plans to complement the standard in the future with additional online tools, guidance and materials to help companies implement it. These support mechanisms should ensure wide acceptance of the standard and facilitate its implementation in practice.
Regulation on transparency and integrity of ESG rating activities
The European Union has also adopted Regulation (EU) 2024/3005 of the European Parliament and of the Council[3] , which establishes a single regulatory framework for ESG ratings (the “Regulation“). ESG ratings play a crucial role in investment decisions and access to finance, but until now they have lacked uniform rules. The new Regulation therefore introduces several key measures:
- Improving the quality of ESG ratings – providers must disclose their rating methodologies, allowing investors to better understand and compare ESG ratings.
- Enhancing transparency and independence – strict rules will limit conflicts of interest, for example where an ESG rating provider also offers consulting services.
- Combating greenwashing and social washing – introduces measures against misleading claims.
The Regulation stipulates that ESG rating providers must be authorised by the European Securities and Markets Authority (ESMA), which will ensure uniform quality criteria across the EU. Foreign providers can only operate in the EU under strict conditions. ESMA will also monitor the market, check compliance with the rules and work with other European bodies such as the EBA (European Banking Authority) and EIOPA (European Insurance and Occupational Pensions Authority) to develop regulatory technical standards.
In addition to rating providers themselves, the Regulation will also affect firms that use ESG ratings. More transparent and understandable ratings will allow companies to better understand investor requirements and to prepare for market expectations. Businesses that actively pursue ESG ratings can benefit from better access to finance and increase their attractiveness to foreign investors. The Regulation is already in force and will apply from 2 July 2026.
What does this mean for SMEs?
Although SMEs are not yet directly regulated in the area of ESG reporting, the impact of these measures on them may be significant. Increasingly, they will have to provide ESG information to their business partners or financial institutions, making them a de facto part of a sustainable supply chain. The voluntary VSME standard allows them to report ESG data in a structured and simple way, while the Regulation ensures greater credibility of these assessments.
For SMEs, this means both challenges and opportunities – on the one hand, increasing demands for transparency, on the other hand, the possibility to obtain more favourable financing and a better market position. It is therefore advisable to start ESG reporting early, even if it is not yet mandatory.
Businesses that implement ESG reporting now can gain a significant competitive advantage. Investors and business partners are increasingly looking for companies that demonstrate a responsible approach to sustainability and ESG principles. Early preparation for these changes can thus become a key success factor in the future business environment.
Conclusion
In recent years, the European Union has placed increasing emphasis on improving the transparency and quality of ESG information. This trend reflects the desire of legislators, investors and the general public to ensure that businesses operate in a sustainable, ethical and environmentally and socially responsible manner. Increasing disclosure requirements and ESG assessments bring new challenges but also opportunities for companies of all sizes, including SMEs.
Businesses that adapt to these changes early can gain a range of benefits – from better access to finance, to enhanced credibility with customers and business partners, to long-term stability and resilience to future regulatory changes. While ESG requirements present some challenges, they can also be an opportunity for companies to innovate and improve their market position.
If you have any questions on this topic or on the whole ESG area, please do not hesitate to contact us at PEYTON legal.
[1] Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU as regards corporate sustainability reporting (Text with EEA relevance)
[2] Available at the link: https://www.efrag.org/sites/default/files/sites/webpublishing/SiteAssets/VSME%20Standard.pdf
[3] Regulation of the European Parliament and of the Council on transparency and integrity of environmental, social and governance (ESG) rating activities and amending Regulations (EU) 2019/2088 and (EU) 2023/2859, available at: https://data.consilium.europa.eu/doc/document/PE-43-2024-INIT/cs/pdf
Tereza Hrudková, legal assistant – hrudkova@plegal.cz
Rachel Kouklíková, legal assistant – kouklikova@plegal.cz
Mgr. Jakub Málek, managing partner – malek@plegal.cz
20. 2. 2025