Analysis

    November 7, 2024

    What challenges does the voluntary sustainability reporting standard under the Corporate Sustainability Reporting Directive (CSRD) present for supply chain SMEs?

    VSME standard challenges

    Overall

    • The Voluntary SME Reporting Standard (VSME*) aims to provide a proportionate and simple reporting framework under CSRD which facilitates supply chain SMEs** in disclosing their relevant ESG information while showcasing their ESG credentials.
    • The VSME aims to reduce the reporting burden on supply chain SMEs compared to the more comprehensive CSRD designed for larger companies and effectively consolidate multiple requests of supply chain SMEs into the production of one Sustainability Report.
    • By offering a standardized set of metrics and disclosures, the VSME aims to improve the transparency and comparability of sustainability information reported by supply chain SMEs.

    Increasingly supply chain large customers of SMEs, banks & investors demand ESG data from supply chain SMEs.

    While the VSME is voluntary, a supply chain SME is already indirectly within the scope of CSRD as it is in the supply chain of large customers. If supply chain SMEs wants to keep large customers, access favourable financing, address the competition for talent etc. then in reality it must comply.

    EcoEasi represents a low-cost alternative for Supply Chain SMEs. While the VSME helps SMEs, there remains significant challenges which EcoEasi addresses

    Challenges:

    01. Limited Resources and Expertise

    Many SMEs, especially smaller ones, lack the resources and expertise to effectively collect, analyse, and report ESG data. The introduction of the VSME helps standardise what is required and makes it easier to quantify what is the gap however the challenge of limited ESG Resources and ESG Expertise for SMEs remain. The EcoEasi Suitability Report represents a low cost viable alternative.

    02. Data Collection and Reporting Burden

    Even with a simplified standard like the VSME ED, gathering and reporting sustainability data can still be time-consuming and resource-intensive for SMEs. This burden can be particularly challenging for supply chain SMEs that may need to collect data from multiple suppliers and partners. EcoEasi combine your data and AI to do this at low cost.

    03. Understanding Materiality

    Determining which ESG issues are material can be complex for supply chain SMEs. The VSME provides guidance on materiality assessment, but SMEs will still require external expertise or support to do it themselves and given the cost implications these are not real choices for SMEs. The EcoEasi Sustainability Report product can do this for you.

    04. Alignment with Customer Requirements

    While the consequence of the VSME, Sustainability Reports following CSRD rules becoming the new market standard in the EU. However, this has yet to become the EU market normality. Now different customers may have varying ESG reporting requirements (not least if they come from outside of the EU) and expectations which can result in them still issuing questionnaires. This can create challenges for supply chain SMEs who need to tailor their reporting to meet the specific needs of each customer via the issued questionnaires. EcoEasi products consist of a CDP questionnaire solution and a Sustainability Report that follows CSRD rules.

    05. Costs

    Implementing the VSME will involve additional costs related to data collection and materiality assessment such as ESG reporting software, and/or potential external consultancy. As discussed earlier, the reality is that these options are too expensive for supply chain SMEs with limited budgets. EcoEasi products are a low-cost alternative.

    06. Lack of Awareness and Understanding

    Many supply chain SMEs may not be fully aware of the VSME or its implications for their business. This lack of awareness can lead to delays in implementation or non-compliance with customer requirements.

    07. Integration with Existing Systems

    Integrating sustainability reporting with existing business processes and systems will be a challenge for SMEs, particularly if they must integrate expensive ESG reporting software. This requires careful planning and coordination to ensure a smooth and efficient process. This integration can represent additional costs. EcoEasi products do not require integration with existing systems.

    08. Evolving Regulatory Landscape

    The sustainability reporting landscape is constantly evolving, with new regulations and standards emerging regularly. This can create uncertainty and require SMEs to adapt their reporting practices continuously. EcoEasi will monitor and update its products continually to reflect any changes.

    09. VSME Complexity

    Despite the simplification, the VSME still is still perceived as complex for many supply chain SMEs. Supply Chain SMEs need to select an approach appropriate for them and if they are not a micro-SME, they will need to engage in a detailed materiality assessment and may have to gather their own information from their own supply chain. EcoEasi products do all of this for you

    EcoEasi produces the Sustainability Report you require as a Supply Chain SME.