EU Sustainable Finance Platform proposes new standard to help SMEs access finance for sustainability efforts

The Platform for Sustainable Finance (PSF), a group of experts commissioned by the European Commission to advise on the development of sustainable finance policies, has just published a new report, proposing a “sustainable finance standards for SMEs” to support small and medium-sized enterprises (SMEs) to access external finance to implement initiatives related to sustainability and climate change.

According to PSF, this new report comes in the context of SMEs being a key element in the EU's sustainable transition, as they contribute more than half of the EU's GDP and occupy more than 63% of CO2 and greenhouse gas (GHG) emissions from businesses. While SMEs need access to finance to reduce carbon emissions, transform their operations and develop sustainable products and services, the report finds that many SMEs are struggling to access sustainable finance. These challenges include:

• High minimum loan size
• Banking regulations are complex.
• Lack of full awareness
• Lack of harmonized definitions of green or sustainable loans
• Lack of sustainability-related data reported by SMEs.

Although EU Taxonomy was established as a classification system to support sustainable finance, PSF noted that the system was not designed for SMEs, with requirements and criteria too difficult for small businesses to comply with.

Solutions from new standards

To address these challenges, PSF proposes a simplified system that makes it easier for SMEs to access sustainable finance and simplifies disclosure for financial institutions on their key performance indicators (KPIs) and climate-related efforts.

In addition, this standard will also help banks and financial institutions easily classify loans or other forms of financing for SMEs as sustainable green finance or transformational finance.

Key elements in the proposed standard

According to the PSF report, key elements of the standard include:

1. Minimum environmental and social protection measures:
   • No funding for activities in sectors excluded under the EU Benchmarking Regulation (PAB).
   • SMEs must not be located in excluded sectors or provide services/products related to excluded activities.
2. Sustainability Index Report:
   • Based on voluntary standards for SMEs (VSME).
   • These indicators will help SMEs disclose sustainability data as part of voluntary reporting or in response to requests from financial institutions or value chain partners.

The report also recommends development an online tool, based on existing sustainable finance tools, to support SMEs in assessing whether their activities or investments qualify under the SME sustainable finance standards.

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

Comments from PSF President

In a post announcing the report, Helena Viñes Fiestas, President of the Sustainable Finance Platform, shared:

“Our new report offers a practical solution for SMEs facing three challenges: staying competitive amid the ecological and digital transformation, reducing carbon emissions in their operations, and accessing the finance needed to make these changes.”