VSME – the little sister of the ESRS

The omnibus proposal means that up to 80% of companies will be exempt from the CSRD obligation. The VSME standard nevertheless enables SMEs to produce credible sustainability reports.

The Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) is a voluntary sustainability reporting standard for micro, small and medium-sized enterprises (SMEs) in the EU that are not listed on the stock exchange. The VSME was published by the European Financial Reporting Advisory Group (EFRAG) in December 2024 to provide a leaner and less complex alternative to the mandatory European Sustainability Reporting Standards (ESRS). The VSME basically covers the same sustainability topics as the ESRS, but is geared towards the limited resources of SMEs. Accordingly, the VSME reflects the general ESG structure but avoids going into the same level of detail.

The aim is to enable SMEs to communicate transparently on sustainability without overburdening them with the complex requirements of the ESRS. The VSME therefore acts as a ‘value-chain cap’ that prevents SMEs from being obliged by their business partners to provide information that goes beyond the VSME (‘trickle-down effect’). This means that smaller companies are not de facto forced into sustainability reporting by the requirements of their larger business partners, even though they are not legally obliged to do so.

This should ultimately reduce the bureaucratic burden on SMEs and make it easier for them to get started with sustainability reporting.

The VSME is aimed at unlisted micro, small and medium-sized enterprises that do not fall under the reporting obligation of the Corporate Sustainability Reporting Directive (CSRD) and are therefore not required to report in accordance with the ESRS. The VSME is therefore based on the voluntary participation of SMEs and micro-enterprises. The following categories are defined in the VSME:

To support SMEs in the application of the VSME, EFRAG has published guidance and tools, such as appendices in the standard itself and a template for data collection. In addition, the appendices within the VSME provide an understanding of terms (Appendix A), a list of relevant topics (Appendix B) and a list of which disclosures in a topic are important for banks and investors (Appendix C). Further information can be found here.

The national implementation of the VSME is still to be finalised, so there may still be changes in the ongoing legislative process. Nevertheless, companies can already use the VSME voluntarily. For SMEs that want to prepare a sustainability report or further develop their existing report, the standard provides guidance on both content and structure.

The VSME standard consists of two modules. The basic module covers the minimum requirements and is intended in particular for micro-enterprises (up to 10 employees). In terms of content, nine ESG key figures are asked here. These include Scope 1 and Scope 2 GHG emissions, water consumption, information on the working conditions of the company’s own employees, key figures on health and safety, information on corruption and other possible sustainability information. It should be emphasised that no materiality analysis is required and that individual topics may even be omitted if they are ‘not applicable’ to the company. This means that the approach of the inside-out perspective and the outside-in perspective remains valid even without a comprehensive double materiality analysis.

The second module of the VSME, the so-called ‘Comprehensive Module’, is aimed at small and medium-sized enterprises that go beyond the minimum requirements of the basic module and wish to disclose more detailed sustainability information. It supplements the basic module with nine additional topic areas and thus enables in-depth reporting on topics such as Scope 3 emissions and the formulation of emission reduction targets, human rights guidelines and key figures on diversity within the company.

Simplification and relief

• The VSME standard offers SMEs a voluntary, significantly simplified alternative to the complex and resource-intensive requirements of the mandatory ESRS standards. This makes it easier to get started with sustainability reporting.
• The EU wants to legally stipulate that companies only have to provide their VSME report for enquiries and no further information beyond that (value chain cap). This could ease the bureaucratic burden in relation to customer enquiries.

Flexibility and practicality

• Thanks to the modular structure of the VSME, companies can choose between a basic and a more comprehensive module, depending on their needs and resources.
• The defined structure enables practical application. In addition, the EFRAG tools provided can provide support during implementation.

Fulfilment of value chain requirements

• Although many SMEs are not required to report directly in accordance with the CSRD, they must provide sustainability data at the request of business partners, banks or investors. The VSME standard provides an entry point for the provision of this information.

Strengthening competitiveness and access to financing

• Structured ESG reporting according to VSME enables SMEs to better communicate their sustainability performance, which can improve their chances of obtaining financing and new business relationships
• The transparency provided by the VSME strengthens the trust of a wide range of stakeholders, such as banks, customers or interested parties, and consequently offers the potential to improve the position in supply chains.

Future prospects

• Meaningful sustainability reporting will be indispensable in the future, which is why the VSME offers an easy entry point for SMEs to take advantage of.
•  The VSME thus offers the opportunity to contextualise sustainability information and communicate it to internal and external stakeholders through a meaningful report.

Compared to the ESRS, the VSME standard makes sustainability reporting much easier for SMEs by reducing the scope of reporting and therefore the bureaucratic burden. At the same time, the clear and standardised ESG structure is retained so that the requirements of business partners, banks, customers and investors can be addressed. In this way, the VSME promotes transparency, competitiveness and sustainable business practices.

Ultimately, the VSME provides an accessible entry point into sustainability reporting.