Accelerating Sustainability for SMEs
How Evolving EU Regulations Pave the Path for Asia's Leadership
A significant recalibration of Europe's ESG regulatory landscape is underway. Just months after European Commission President Ursula von der Leyen's December 2024 announcement of the competitive compass aimed at bolstering EU competitiveness, the Commission proposed an omnibus directive in late February.
This move dramatically narrows the scope of mandatory ESG reporting under the Corporate Sustainability Reporting Directive (CSRD), exempting nearly 80% of companies and prompting widespread discussion.
EU Regulatory Recalibration
Moving forward, EU companies exceeding 1,000 employees and specific financial thresholds will remain subject to CSRD, including the double materiality assessment. For smaller entities, the European Financial Reporting Advisory Group (EFRAG) has introduced the Voluntary ESRS for SMEs (VSME). This streamlined standard, developed collaboratively with businesses and financial institutions, aims to facilitate SME sustainability reporting, particularly in response to data requests from larger CSRD-regulated companies within their value chains and also as a risk assessment tool for financial institutions.
Asia Pacific's Growing ESG Leadership
Hong Kong (HKEX)
Mandating TCFD and ISSB climate disclosures for all Main Board issuers by 2026
Japan
Advancing comprehensive ESG frameworks for businesses
Singapore
Developing robust sustainability reporting standards
China & Australia
Implementing progressive ESG regulatory frameworks
While Europe re-evaluates its approach, the Asia Pacific region is demonstrating increasing momentum in ESG regulation. The Hong Kong Stock Exchange (HKEX) is progressively mandating climate-related disclosures aligned with TCFD and ISSB standards for all Main Board issuers by early 2026. Similarly, nations like Japan, China, Singapore, and Australia are advancing their ESG frameworks. This shift presents an opportunity for the Asia Pacific region to potentially lead the global evolution of ESG strategy and regulation.
VSME implementation framework for SMEs operating across borders
Asia-based businesses operating in the EU should closely examine the VSME package and take proactive steps to ensure compliance. By adopting these standards, businesses can unlock greater access to European markets, tap into valuable resources, and secure enhanced funding opportunities, positioning themselves for long-term growth. With the right strategy and tools, aligning with VSME requirements can be a seamless and cost-effective process, enabling businesses to meet regulatory expectations while gaining a competitive edge.
"From our perspective, this EU regulatory recalibration offers a chance for all companies, especially SMEs, to refine their ESG strategies. While the dust settles on reporting standards, platforms like Portfolio One allow companies to manage their building portfolio carbon emissions in real time and drive meaningful sustainability progress."
Key Takeaways
- The EU's 'competitive compass' is recalibrating CSRD requirements, exempting nearly 80% of companies from mandatory reporting.
- EFRAG's Voluntary ESRS for SMEs (VSME) provides streamlined standards for smaller entities to facilitate sustainability reporting.
- Asia Pacific is demonstrating increasing momentum in ESG regulation, with regions like Hong Kong advancing mandates for climate-related disclosures.
- By adopting VSME standards, Asia-based businesses can unlock greater access to European markets and funding opportunities.
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Peter Dampier
Vision Zero Connect's APAC Business Leader
Please contact Peter Dampier for a free consultation to learn how Vision Zero Connect can support your sustainability journey. Our team provides expert guidance on navigating the evolving regulatory landscape and implementing efficient sustainability reporting practices.