The European Securities and Markets Authority (ESMA) has put forward fresh proposals to amend the upcoming sustainability reporting standards for small and medium-sized enterprises (SMEs) listed on the market.

As part of the recommendations, SMEs will be obliged to disclose opportunities linked to sustainability and the positive outcomes that those ventures could produce, the end goal being to reduce risk of greenwashing.

The guidance is issued within the ESMA’s feedback to an inquiry by the European Financial Reporting Advisory Group (EFRAG) regarding its submitted European Sustainability Reporting Standards (ESRS) for SMEs under the Europe’s Corporate Sustainability Reporting Directive (CSRD).

The CSRD has been in force for large public-interest entities with over 500 employees since early 2024. It will extend to firms with more than 250 employees or €40 million in revenue in 2025 and will apply to listed SMEs the year after.

In January 2024, EFRAG released exposure drafts for new sustainability reporting standards tailored for SMEs. Mandated by the European Commission in June 2020, EFRAG developed standards for public-interest SMEs with traded securities (ESRS LSME) and voluntary standards for non-listed SMEs (VSME). A public consultation on these new standards has also been launched to gather feedback and refine the guidelines.

In its feedback, the European Securities and Markets Authority (ESMA) recognized the complexity EFRAG faced in balancing proportionality and transparency in sustainability reporting standards for smaller businesses. ESMA remarked that the proposed standards effectively balance these considerations but suggested specific adjustments.

A key recommendation from ESMA involves enhancing SMEs’ reporting on sustainability-related positive impacts and opportunities. While all entities must disclose risks and adverse impacts, ESMA noted that larger entities have more extensive requirements for reporting opportunities, whereas SMEs’ obligations are primarily focused on adverse impacts.

ESMA highlighted a significant concern: the risk of greenwashing, as reporting on positive impacts and opportunities would occur outside the CSRD framework, lacking the assurance safeguards of sustainability reporting rules.

As reported by ESG Today, ESMA responded: 

“There is, in fact, a risk that positive claims on sustainability impacts and opportunities will be presented outside of the sustainability statement and therefore they will not be subject to assurance and compliance with specific reporting requirements.”

“In our view, limiting the efforts that SMEs will have to make when explaining to international investors any divergence with international sustainability standards is one important aspect of making sure that the ESRS LSME is proportionate.”

Know the risks

Organisations worldwide face significant risk of greenwashing should they be found to fall short of complying with evolving sustainability regulations. The issues become all-the-more complex as we move forwards in the era of AI and other emerging technologies.


The issues take centre stage at #RISK Digital this summer.

Not to be missed at #RISK Digital

Leveraging Technology for CSRD Compliance

Time: 16:00 PM - 16:30 PM (GMT)

With the enactment of European Sustainability Reporting Standards (ESRS), businesses are challenged to find effective and efficient ways to comply. Can technology be the solution?

Technology can help organizations achieve their compliance and sustainability goals, but it also poses some challenges that need to be addressed and managed.

Join us to explore how companies can harness the power of automation for a streamlined and scalable approach to CSRD compliance.

Experts examine potential pitfalls in deploying technology and discuss preparation steps for smooth implementation. As the sustainability landscape rapidly shifts towards mandatory disclosures, understanding the role of technology in facilitating this transition is essential. 


  • Tahmina Day, Global ESG Solution Lead at Archer 

These are just two of the exclusive sessions taking place at #RISK Digital this July!

Click here to see the full agenda

Discover more at #RISK Digital

Streaming live on Wednesday 3 July, #RISK Digital examines the changing risk landscape in a content rich, knowledge sharing environment.

Attendees will be able to learn how to mitigate risks, reduce compliance breaches, and improve business performance.

Click here to register for free for #RISK Digital