28 May 2024

Response of the Platform on Sustainable Finance to the EFRAG’s public consultation on draft ESRS

While reporting may not be the ultimate goal, it serves as a necessary step because what cannot be measured cannot be effectively managed. In this context, the Platform welcomes EFRAG´s LSME and VSME ESRS.

Key messages
Supporting SMEs in their efforts to decarbonise and implement environmentally friendly practices is crucial and should be a policy priority. While reporting may not be the ultimate goal, it serves as a necessary step because what cannot be measured cannot be effectively managed. In this context, the Platform welcomes EFRAG´s LSME and VSME ESRS.

Often referred to as the backbone of the European economy, SMEs represent just over 50% of the EU´s GDP and constitute an extremely diverse group of over 24 million companies

Collectively, SMEs account for more than 60% of EU GHG emissions of enterprises and are estimated to be responsible for 60-70% of industrial pollution and of total industrial waste.2 The environmental footprint of SMEs is therefore substantial in aggregate, underscoring their critical role in reaching Europe´s net zero goals and building a more sustainable future. However, it is worth noting that a significant proportion of companies, estimated at 55- 60% of SMEs, have a low impact on the environment.

The Platform emphasises the importance of targeting SMEs engaged in activities with medium to high environmental impacts. These should start the journey of decarbonisation while greening their activities. In this respect, the Taxonomy can serve as a guiding tool for the development of simplified approaches tailored to SMEs in this regard. For instance, activities such as construction of new buildings can contribute to climate mitigation efforts, and circular economy initiatives; and SMEs can adopt adaptation strategies using the Taxonomy as guidance to build their climate-resilience. It advocates for the use of the Taxonomy to pinpoint the most impactful activities and focus efforts accordingly.

A simplified demonstration of compliance with Taxonomy criteria and developing a streamlined approach that focuses on one or two key environmental indicators based or inspired by the Substantial Contribution criteria of the Taxonomy, could facilitate SMEs in decarbonising or greening their primary activities. In addition, individual measures to lower their carbon or environmental footprint should be encouraged through the simplification of accessing green finance for those purposes.

Many SMEs are integrated into supply chains of large companies, thereby contributing to the achievement of these companies´ net zero and reducing their environmental footprint. Adopting green practices can enhance their appeal to clients, whether large companies or end consumers. Additionally, SMEs face mounting pressure from both large companies and financiers to disclose environmental and social data. Given that the majority of SMEs rely on bank loans for financing, this pressure is expected to intensify as banks prioritise the greening and decarbonisation of their portfolios to meet legal reporting requirements and net zero objectives....

 more at EU Platform

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