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Key takeaways
The voluntary reporting standard for SMEs (VSME), as developed by the European Financial Reporting Advisory Group (EFRAG), offers a new approach to sustainability reporting for businesses that fall outside of the scope of the Corporate Sustainability Reporting Directive (CSRD). These standards are not just about compliance but are designed to help small and medium-sized enterprises (SMEs) and even larger entities, align their sustainability practices with stakeholder expectations and market needs. Under the new EU Omnibus proposals, the VSME standard serves as a flexible, structured, and less burdensome reporting framework that complements the CSRD.
The purpose of the VSME standard
At its core, the VSME standard was conceived as a voluntary reporting tool. Developed by EFRAG, the body tasked by the European Commission with creating financial and non-financial reporting standards, the VSME standard aims to make sustainability reporting accessible to SMEs. While the CSRD imposes mandatory reporting responsibilities on larger companies, SMEs in their value chains often face questions about environmental, social, and governance (ESG) practices from stakeholders like financial institutions or client organisations. The VSME standard provides these businesses with a simplified framework to report ESG metrics without the legal obligations of CSRD, meeting both internal and external stakeholder demands. Essentially, the VSME standard will be used as the cap for information that larger entities can ask from their value chain partners.
The absence of a requirement for a double materiality assessment in the VSME standard further simplifies the process. Companies can choose relevant topics to report on without undergoing the dual perspective analysis mandated by the CSRD. For those that have conducted such assessments already, the VSME framework supports linking existing findings to its disclosure requirements. This flexibility means that businesses can choose to align with the VSME standard as a starting point and then scale up when needed.
Structure of the VSME standard
The VSME standard is divided into two reporting modules:
1. Basic module:
- Designed for businesses and micro companies beginning their ESG reporting journeys.
- Contains a concise set of 11 disclosure requirements that cover general company information, environmental factors, social aspects, and governance issues.
- Examples include energy and greenhouse gas emissions (focused on Scope 1 and 2), workforce breakdown by gender and contract type, and health and safety data.
2. Comprehensive module:
- Suited for businesses with more advanced ESG experience, those ready to expand their reporting, and those who need to answer value chain partners’ questions.
- Includes additional disclosures, such as Scope 3 emissions, climate transition plans, and reduction targets aligned with the EU Green Deal and Paris Agreement goals.
- Covers climate risks analysis and reporting on human rights policies or negative human rights incidents.
Businesses can begin with the basic module and progress to the comprehensive module over time, using each step to strengthen their reporting practices.
Benefits of the VSME standard
The VSME standard offer numerous advantages for both SMEs and larger organisations:
For SMEs:
- Ease of use:
The language and structure of the VSME standard is designed to be accessible, reducing the complexity often associated with the more detailed CSRD reporting requirements. - Resource efficiency:
The simplified framework minimises time and costs compared to full CSRD reporting, allowing SMEs to produce sustainability reports without major investments. - Unification of reporting:
SMEs often face multiple requests from larger partners or financial institutions for ESG data. The VSME standard enables them to create a single, cohesive report that answers these queries, saving considerable effort. - Market advantages:
Voluntarily adopting sustainability reporting enhances an SME’s reputation, boosts stakeholder trust, and can improve access to green finance opportunities.
For larger entities:
- Enhanced value chain transparency:
If SMEs in a larger organisation's value chain use the standard, it strengthens the organisation's overall ESG transparency and reporting quality, helping to meet CSRD requirements more effectively. - Strengthened stakeholder engagement:
By encouraging transparency throughout the value chain, larger organisations benefit from better stakeholder relationships and improved public perception.
Optional assurance process
Although assurance is not mandatory under the VSME standard, businesses are encouraged to consider it. Assurance enhances the reliability of ESG information, an area of increasing concern in sustainability reporting. Companies can work with auditors to identify key performance indicators (KPIs) for assurance, creating flexibility while saving costs. For example, this targeted approach might focus only on a subset of disclosures, making the assurance process lighter compared to full CSRD requirements.
Scalability and alignment with CSRD
One of the most significant advantages of the VSME standard is its alignment with CSRD requirements. The topics and subtopics covered in the standard are consistent with those in CSRD, making it easier for businesses to transition from VSME to CSRD compliance as they grow or develop more advanced ESG capabilities. For instance, a company starting with the basic module can gradually add disclosures from the comprehensive module and eventually incorporate the full ESRS (European Sustainability Reporting Standards) if needed. This step-by-step approach allows businesses to refine their reporting processes over time, avoiding unnecessary pressure and ensuring steady progress.
A new path to sustainability reporting
The Voluntary SME standard presents a valuable opportunity for businesses to engage in sustainability reporting at a level that matches their resources and expertise. With its simplified structure, alignment with CSRD topics, and flexibility for scalability, the VSME standard sets a practical foundation for companies seeking to integrate ESG practices into their operations. Whether starting with basic disclosures or adopting the comprehensive module, businesses can leverage the standard to enhance their reputation, improve value chain transparency, and meet rising stakeholder expectations.
