The value chain of undertakings under the European Sustainability Reporting Standards (ESRS): analysis of Listed Iberian SMEs

Abstract

The institutional sustainability reporting background and prior research show that the problem to be addressed before the preparation of European Sustainability Reporting Standards for Small and Medium Sized Entrerprises (LSME ESRS) by the EFRAG is the lack of knowledge about the value chain approach that the LSME should follow to address the proportionality need for SME while preserving the feasibility for large companies to provide a relevant information when reporting on their value chain. According to the EFRAG, a proportionate definition of LSME composing the value chain of the large reporting entities is needed before preparing a draft of specific standards. Therefore, this research intends to answer to the following questions: (1) which is the profile of LSME composing the value chain of undertakings and (2) which is the relationship between such profile and the current level of voluntary sustainability disclosures and other specific SME´s characteristics. Therefore, the main objectives of this paper are (a) to analyse the level of voluntary sustainability disclosure of Iberian LSMEs by means of a content analysis, a voluntary disclosure index based on CSRD and ESRS disclosure requirements and architecture, and the qualitative characteristic of relevance (proxied by materiality) (Cross-cutting ESRS 2); (b) to identify its business relationship and value creation profile following the Holweg and Helo (2014) proposal of framework for defining a value chain architecture at the firm level; (c) and finally, to figure out which are the LSME´s characteristics and the value chain profile determining the levels of voluntary sustainability disclosure. The originality of this study relies on the fact that it explores for the first time the value chain and value creation profile of LSMEs and its relationship with the voluntary sustainability disclosures. Consequently, the findings could contribute to a deeper understanding of a proportionate definition of SMEs in the value chain of large undertaking to which the forthcoming ESRS will apply. Specifically, we expect to contribute to one of the four-steps SME test should be carried out: the preliminary assessment of businesses likely to be affected by the ESRS for being within the value chain of the undertakings. (European Commission, SME Test, 2021).