EU: EU Platform on Sustainable Finance Proposes New Standard to Help SMEs Access Financing for Sustainability Efforts

The Platform on Sustainable Finance (PSF), an expert group mandated by the European Commission to advise it on the development of sustainable finance policies, announced the publication of a new report, proposing a new “SME sustainable finance standard” aimed at helping small and medium-sized enterprises to access external financing to support their sustainability and climate transition-related initiatives.

According to the PSF, the new report comes as SMEs form a key element in the EU’s sustainability transition, as they contribute more than half of the EU’s GDP and account for more than 63% of enterprise CO2 and broader GHG emissions. While SMEs will require access to financing in order to decarbonize, transition their operations and develop sustainable products and services, however, the report notes that many face challenges in accessing sustainable finance, ranging from high minimum loan sizes, complex banking regulation, insufficient awareness, a lack of harmonized regulatory green or sustainable loan definitions, and a lack of sustainability-related data reported by SMEs.

While the EU Taxonomy was established as a classification system enabling the categorization of economic activities to facilitate sustainable financing, the PSF noted that it was not designed for SMEs, with requirements and criteria that are too difficult for small businesses to comply with.

In order to address these challenges, according to the PSF, the new standard presents a simplified system for SMEs to access sustainable financing and to simplify disclosure to financiers around their key performance indicators and their climate‑related efforts.

Additionally, the PSF noted that the standard would make it easier for banks and financial institutions to classify loans or other forms of financing provided to SMEs as sustainable green or transition finance.

Among the key elements of the proposed standard outlined by the PSF report are minimum environmental and social safeguards for SMEs, including not financing activities in the excluded sectors defined in the EU Benchmark Regulation for Paris-Aligned Benchmarks (PAB), and for the SME itself to not fall under the PAB excluded sectors or provide dedicated services or products for an excluded activity, as well as for reporting on sustainability indicators based on the voluntary standards for SMEs (VSME). The report also proposes that the VSMS being developed for companies outside the scope of the CSRD include indicators capturing the SME sustainable finance standard, helping to ensure that SMEs can disclose sustainability metrics as part of their voluntary reporting, or to meet requests from financiers or value chain partners.

The PSF report also recommends the development of an online tool, based on current sustainable finance tools, to help SMEs assess whether activities or investments would qualify under the SME sustainable finance standard.

The proposed standard initially focuses on climate, with plans to expand to other environmental objectives in the future.

In a post announcing the release of the report, Helena Viñes Fiestas, Chair of the Platform on Sustainable Finance, said:

“Our new report offers a practical solution for SMEs facing a triple challenge: maintaining competitiveness amid the twin ecological and digital transitions, decarbonizing their operations, and accessing the finance they need to make this shift.”