VSME standards revolutionize sustainability reporting for SMEs

Sustainability & ESG - Reading time: 8 Min

The Corporate Sustainability Reporting Directive (CSRD) poses particular challenges for small and medium-sized enterprises (SMEs). High bureaucratic hurdles make it difficult to meet the new sustainability reporting requirements. To alleviate these difficulties, the omnibus draft was presented in February 2025 with the aim of simplifying the implementation of the CSRD. In this context, the VSME standard (Voluntary Standard for SMEs) is also gaining in importance. The approach offers SMEs an alternative to make their reporting efficient and legally compliant. In this article, you will find out how you can benefit from simplified sustainability reporting through the VSME standards, what the main differences to the ESRS are and what steps are necessary to prepare for the introduction.

The most important facts about the VSME standard

A voluntary EU standard for SMEs for simple and resource-saving sustainability reporting.

Non-listed SMEs that wish to provide ESG data to banks, investors or customers.

Basic module: 11 central ESG disclosures
Comprehensive module: Extension for more ambitious companies

Following the increase in the CSRD thresholds, many SMEs are no longer required to report, but must continue to provide ESG data.

Simple application, access to financing, strengthening competitiveness.

Voluntarily applicable since publication of the final draft in December 2024

The most important information at a glance

The EU has introduced a significant step forward for small and medium-sized enterprises (SMEs) with the "Voluntary Standard for SMEs" (VSME Standard), the draft of which was published in January 2024. The focus is on simplification for SMEs, which are not legally obliged to report on sustainability but are often required to do so by their business partners. The standard aims to support SMEs in clearly documenting their sustainability goals and initiatives. This could not only reduce the bureaucratic burden, but also promote the sustainable efforts of these companies. Click here to access the guidelines published by EFRAG on the VSME standard.

Do all small and medium-sized enterprises have to demonstrate compliance with the VSME standard? The growing interest of customers in the sustainability practices of companies requires a clear and uniform basis of information. For this reason, the standard was developed, which enables a standardized query on relevant topics in the area of sustainability. This standard aims to harmonize different requirements and offers the advantage of a consistent system. The VSME is based on the guidelines of the Corporate Sustainability Reporting Directive (CSRD), but does not take its strict requirements into account. Companies benefit from this flexible approach as it enables them to communicate their sustainable practices more effectively and meet the expectations of their stakeholders.

Why is this important? By using the questionnaire, companies are able to create a comprehensive sustainability report. This not only ensures legal certainty, but also enables a well-founded analysis of sustainability issues within the company. The new standards are specifically designed to take into account the particularities of SMEs and at the same time guarantee structured and transparent reporting.

What are the voluntary ESRS (VSME)?

The voluntary ESRS(VSME), also known as the"Voluntary Small and Medium Enterprise European Sustainability Reporting Standards", are aimed at companies within the European Union with fewer than 1,000 employees and an annual turnover of less than 50 million euros. These standards were developed by the EFRAG (European Financial Reporting Advisory Group) to support SMEs in their sustainability reporting. They offer a simplified and less complex alternative to the comprehensive European Sustainability Reporting Standards (ESRS), which are mainly aimed at larger companies. You can find out more about the conventional reporting standards in our blog post.

By implementing these standards, SMEs can present their sustainability practices transparently and thus meet legal requirements more efficiently, which helps to strengthen their market position and trustworthiness. It takes into account the limited resources of SMEs compared to larger corporations and thus facilitates access to financing and customers by standardizing various ESG data requests.

In contrast to the ESRS, which comprises over 1,000 data points, the VSME standard significantly reduces the administrative effort by containing only two modules with a total of 20 overpoints to be reported. A double materiality analysis is not required. If you would like to find out more about the materiality analysis, you can access our article here. This simplification enables SMEs to respond more efficiently to sustainability requests from business partners such as banks or larger companies.

Which companies must report in accordance with the VSME?

The voluntary ESRS are aimed at micro, small and medium-sized enterprises in the EU that are not obliged to report under the CSRD. These standards offer these companies a practical and meaningful opportunity to address material aspects of environmental, social and governance (ESG). If the European Commission's proposal for an omnibus law is adopted, the importance of VSME standards for many European companies will increase significantly on a voluntary basis.

Why is the VSME standard important for small and medium-sized enterprises even without a reporting obligation?

Small and medium-sized enterprises (SMEs) are not legally obliged to report on their sustainability practices. Nevertheless, the relevance of the standards is increasing for various specific reasons:

A key aspect in the context of ESG compliance is the so-called trickle-down effect. This describes how sustainability requirements for large companies are also transferred to smaller companies along the entire supply chain. Specifically, this means that a large company, which is obliged to prepare ESG reports, requests the necessary data from its suppliers - often small and medium-sized enterprises.

In many cases, these small and medium-sized enterprises do not yet have systematic procedures for collecting such data, as they are not obliged to report themselves. However, the VSME standards offer these companies an effective way to organize their sustainability data and thus ensure recognized and consistent sustainability reporting. This not only promotes compliance, but also strengthens trust in the entire supply chain and contributes to the creation of sustainable business practices.

By implementing the VSME standards, small and medium-sized companies have the opportunity to protect themselves from excessive or inconsistent sustainability reporting requirements from large customers. In the absence of clear guidelines, large companies demand customized, often very detailed sustainability data. In the future, the standards will provide a structured, transparent and widely accepted basis that protects companies from potential arbitrariness on the part of their major customers. By applying these standards, SMEs can make their reporting more efficient while ensuring their compliance with existing regulatory requirements.

In today's business world, banks and financial institutions are becoming increasingly important in assessing the sustainability performance of companies, particularly through the use of ESG questionnaires. A positive ESG score can offer significant benefits in the form of improved credit terms, while the absence of relevant ESG data could significantly limit financing opportunities. The report supports SMEs in responding to the banks' requirements in a targeted manner by providing relevant information on environmental aspects, social issues and corporate governance in a structured manner. In addition, the report shows that the SME acts proactively and sustainably, which not only strengthens the confidence of lenders, but also contributes to the long-term integrity and reliability of the company.

The EU guidelines on sustainability are constantly changing. What is currently still voluntary could become mandatory in the near future. Small and medium-sized companies that get to grips with the VSME standards at an early stage are better prepared for future regulations and can thus gain a competitive advantage.

A transparent sustainability report in accordance with the VSME standard that is published on the website, for example, shows that a company operates sustainably and takes responsibility. In times of growing social and political expectations of companies, this can strengthen their image, improve brand perception and open up new business opportunities. Customers, investors and business partners prefer companies that disclose their ESG practices - a clear competitive advantage for SMEs that commit to sustainable action at an early stage.

What are the differences between ESRS and VSME?

The ESRS are mandatory for large companies and require comprehensive reporting on key topics such as climate change, biodiversity and social aspects. In contrast, the VSME standards are voluntary for unlisted small and medium-sized enterprises and focus on relevant issues for this target group.

A materiality analysis is mandatory under the ESRS, whereas it is only optional under the VSME standards. In addition, the ESRS include more than 1,000 mandatory data points, which can lead to considerable additional work compared to the approximately 75 data points of the VSME standards. This reduced data collection makes the VSME standards more cost-effective and practical for SMEs striving for sustainable management despite limited resources.

VSME differs from ESRS in the following points:

Voluntary vs. mandatory: The ESRS are mandatory for large companies in the EU that are subject to the CSRD. In contrast, the VSMEs are optional standards for small and medium-sized enterprises, which can decide for themselves whether and to what extent they wish to provide information.
Scope and depth of reporting: The ESRS covers a wide range of topics relevant to companies, including climate change, biodiversity, social issues and governance. Companies are required to provide comprehensive information on these aspects. In contrast, VSME focuses on less detailed requirements, which are therefore particularly suitable for companies with limited resources.
Materiality analysis to determine the scope: The ESRS requires a comprehensive materiality analysis to determine all relevant topics and to meet the legal requirements. In contrast, a simplified materiality analysis can be carried out for the VSME, which requires fewer resources and less effort. This focuses specifically on the aspects that are directly material for the company, which enables efficient and practical implementation of compliance objectives.
Costs and resources: The introduction of ESRS requires considerable effort, often involving the use of external consultants and additional internal resources. In contrast, the VSME was designed for small and medium-sized companies in such a way that it can be implemented with existing resources. This leads to a significant reduction in the use of costs and resources and enables companies to adapt to legal requirements in the long term.

Current status and legal background of the VSME

Current status of the VSME standards

On December 17, 2024, EFRAG published the voluntary guidelines for sustainability reporting by unlisted small and medium-sized enterprises. This publication represents a significant step forward, enabling small and medium-sized enterprises to standardize and simplify their reporting. The introduction of these guidelines increases transparency and promotes compliance with legal requirements, which helps companies to document their sustainable practices responsibly and communicate them to stakeholders.

The consultation period on the drafts of the VSME standard ran from January 22, 2024 to May 21, 2024, during which EFRAG received extensive feedback from various stakeholders, including small and medium-sized entities, their associations, banks, auditors and national standard setters. Based on this valuable feedback, EFRAG implemented additional simplifications to best adapt the standard to the needs of small and medium-sized entities. The final standard was approved by EFRAG SR TEG on October 22, 2024 and received EFRAG SRB approval on November 13, 2024. EFRAG is planning a number of initiatives in 2025 to promote acceptance of the standard in the long term. These include the provision of comprehensive supporting materials and practical guides to help companies implement the standard.

Omnibus law: driver of CSRD streamlining

The EU's Omnibus Directive is a response to concerns that the original CSRD requirements are too burdensome, especially for smaller companies. The main aim of the new directive is to cut red tape, reduce the reporting burden and develop workable requirements for small and medium-sized enterprises. A proposal was recently presented by the Commission, but has not yet been finally approved.

We have summarized the most important changes to the EU Omnibus Act here:

Numerous companies excluded from the CSRD reporting obligation: Only companies with more than 1,000 employees are required to report under the proposal. This would reduce the number of companies that have to prepare a sustainability report by 80%.
Reporting obligations postponed: Companies are not required to report until 2028 for the 2027 financial year.
Fewer reporting obligations: A 25% reduction in required data points, no specific standards by sector, restriction of reporting requirements regarding supply chains.
No stricter checks: The planned "Reasonable Assurance" is no longer applicable, the "Limited Assurance" remains.
EU taxonomy simplified: The obligation to report operating expenses only applies to a share of more than 25% of taxonomy-eligible turnover, a materiality limit is introduced and voluntary reporting is possible.
Relaxations in the CSDDD: Due diligence obligations only apply to direct business partners, there is no EU-wide liability, and inspections only take place every five years.

This is how the Omnibus Directive and VSME standards could relieve SMEs

The Omnibus Directive puts many companies in an uncertain position. The CSRD has not yet been transposed into German law and the omnibus proposal suggests that this transposition will be delayed. If the proposed legislation is adopted, many companies may be exempt from their reporting obligations. At the same time, however, investors, customers and other stakeholders continue to want clear ESG data. The VSME standard will therefore become more important for many companies. Companies that are not directly subject to the new CSRD requirements can create a convincing sustainability report with comparatively little effort by applying the VSME standard. This report is of considerable interest to their stakeholders - including investors, customers and suppliers - and supports responsible and sustainable business practices.

In addition, the VSME standard offers companies the opportunity to develop an ESG strategy at an early stage and collect the necessary data to be well prepared for future reporting obligations, even if the legal framework is currently still unclear. The standard is not only a response to current requirements, but also a forward-looking measure to strengthen competitiveness. Companies that increase their ESG transparency at an early stage position themselves as responsible players and can benefit from a positive reputation in the industry. This standard could therefore become the preferred sustainability standard alongside the comprehensive CSRD.

Subject of the VSME draft - Basic and Comprehensive Module

The draft contains two different modules: the Basic Module and the Comprehensive Module. These modules can be applied both at the level of individual companies and on a consolidated basis. They contain comprehensive information on environmental aspects as well as social issues and corporate policies that support companies in efficiently meeting ESG compliance requirements.

The VSME report should be prepared annually if requested by larger companies or banks. If the small or medium-sized enterprise prepares annual financial statements, the VSME report should be provided at the same time as the annual or consolidated financial statements and financial reporting. The SME has the choice of whether to publish its report. However, certain sensitive data may be omitted; in this case, the company is obliged to state this clearly. From the second year onwards, comparative figures from the previous year should also be integrated into the report in order to ensure a transparent and comprehensible presentation of developments.

The two modules require different information from the company and offer different data points as part of the "if applicable" approach. In this context, an SME using the VSME is only required to provide the information that is relevant to the SME.

Basic module

The basic module, in accordance with the draft of the VSME, is aimed at micro-entities as defined by the Accounting Directive and comprises the minimum requirements. The contents of the basic module are divided into sections B 1 to B 11 to ensure clear orientation. In addition, a guide with explanations (page 15ff. of the draft standard) is available, which contains examples of calculations, formulas, further internet links and similar.

In the disclosures relating to B 1, the company is required to state precisely which specific module is used and whether this is done at consolidated or individual level. In addition, the subsidiaries and their registered addresses must be listed. It must also be stated whether and, if so, which sensitive information cannot be published. In addition, the legal form of the SME, the NACE code (sector code for the economic activity concerned), the balance sheet total, the turnover and the number of employees, both in heads and in full-time equivalents, must be recorded. The country in which the main activity takes place must also be stated.

Furthermore, the locations where material assets are located and the geolocations of land or real estate owned, leased or managed should be listed. If the SME holds a sustainability certificate or similar award, a brief description of the certificate and information about the issuer, date of issue and, if applicable, the rating should be included. In addition, the company should provide a concise description of specific practices, policies and future initiatives and goals aimed at promoting a more sustainable economy, if any. Sections B3 to B7 contain various environmentally relevant information.

The total energy consumption must be recorded in detail according to renewable and non-renewable energy sources. In addition, the estimated direct and site-related greenhouse gas emissions(Scope 1 and 2) must be reported. Pollutant emissions are only to be reported if this is required as part of environmental management or due to legal requirements. In addition, data on water withdrawal and consumption as well as information on waste and recycling practices, including measures to promote the circular economy, should be recorded. The social aspects are covered in sections B8 to B10. This includes a detailed breakdown of the number of employees by contract type, gender, country of origin and remuneration. Section B11 is also dedicated to the disclosure of convictions and fines related to corruption and bribery. Through this comprehensive data collection, companies support compliance with legal requirements and strengthen their transparency with regard to ESG issues.

Comprehensive module

Section C1 of the Comprehensive Module contains a detailed presentation of the key aspects of the business model and the corporate strategy. Section C2 explains the existing practices, guidelines and planned measures for the transformation towards a more sustainable economy. Sections C3 and C4 also provide comprehensive environmental information, while sections C5 to C7 provide social data and facts. Sections C8 and C9 require information on revenues from specific sectors and on gender diversity in governance bodies.

Step-by-step: Implementation of the VSME standard for companies

Implementing the VSME standard requires a systematic approach to ensure that companies are able to produce an informative sustainability report efficiently and without unnecessary effort. Below you will find a comprehensive step-by-step guide to implementing the VSME standard:

Before a company starts preparing reports, it is important to familiarize itself with the requirements of the VSME standard. In addition, a clear person responsible (e.g. a sustainability officer, the controlling department or the management) should be appointed to manage the process.

Which topics and key figures need to be recorded?
Which internal departments are responsible for data collection?
Do ESG data already exist that can be used?

In order to determine what information is required for the report, it is necessary to carry out an inventory. This analysis helps to develop a realistic plan for data collection. The following points, for example, can be clarified:

What ESG data is already available (e.g. energy consumption, CO₂ emissions, social responsibility)?
What gaps still exist?
Where can the missing data be obtained (e.g. from suppliers, external consultants)?

The VSME standard goes beyond mere reporting and gives companies the opportunity to formulate a well thought-out ESG strategy. Companies should ask themselves the following questions:

What long-term sustainability goals do we want to strive for?
What steps can we take to improve our ESG performance?
Are there existing initiatives that can be integrated into the report?

Small and medium-sized companies should carry out a simplified materiality analysis to identify important sustainability issues such as energy consumption, CO₂ emissions and working conditions. A close exchange with stakeholders, especially major customers, helps to better understand their expectations with regard to reporting.

An internal system for collecting sustainability data should be used as early as possible. This is the only way to ensure effective data collection and regular reporting, even if it is initially only used internally.

Small and medium-sized enterprises should take active steps to clearly signal to large customers that they are reporting in accordance with VSME standards. In this way, excessive or arbitrary demands from suppliers can be avoided. It also promotes transparency and consistency in the SME supply chain.

Although the standards are voluntary, it is advisable for small and medium-sized enterprises to formulate a long-term strategy that is regularly evaluated and optimized. This improves their position within the supply chain and prepares them for future changes in sustainability reporting.

A clear strategy not only supports reporting, but also helps to position the company advantageously in competition. Especially now that many companies will probably no longer be covered by the CSRD, resources can be used to focus on specific sustainability measures.

Conclusion: VSME standards as an opportunity for SMEs

The introduction of the VSME standards offers small and medium-sized companies a practical way of structuring their sustainability reporting efficiently and in compliance with the law. While the CSRD presents many companies with bureaucratic challenges, the standard enables voluntary but structured ESG reporting. It is a valuable alternative, particularly for SMEs that have to provide proof of sustainability from business partners or banks. Compared to the comprehensive ESRS, the VSME standards reduce the effort considerably by only requesting relevant data points and allowing a simplified materiality analysis. This helps companies to communicate sustainable business practices transparently without overburdening themselves financially or administratively.

The EU's Omnibus Directive could further reduce the pressure on many companies by removing the reporting obligation for many companies. Nevertheless, the demand for ESG data from customers, investors and banks remains. Companies that adapt to the voluntary VSME standards at an early stage can not only optimize their sustainability strategy, but also secure a competitive advantage. Ultimately, the VSME standard is a future-oriented solution that helps SMEs to operate more sustainably, avoid regulatory uncertainties and strengthen their market position in the long term.

FAQ

The VSME standard (Voluntary Standard for SMEs) is a voluntary sustainability report for small and medium-sized enterprises that do not fall under the CSRD obligation but still have to provide ESG data - for business partners or banks, for example. It offers a simplified alternative to the extensive ESRS standards and helps SMEs to document their sustainability practices in an efficient and standardized manner.

The standard is voluntary and is aimed at SMEs that are not subject to CSRD reporting requirements. It enables structured ESG reporting in order to meet the sustainability requirements of business partners, banks or investors without the high bureaucratic hurdles of the ESRS.

The VSME standard is a simplified and voluntary alternative to the ESRS. While the ESRS requires over 1,000 data points and a comprehensive materiality analysis, the VSME standard only comprises around 75 data points and does not require a double materiality check. It is specifically tailored to the limited resources of SMEs and makes ESG reporting considerably easier.

The VSME standard records key ESG data on the environment, social issues and corporate governance. This includes energy consumption, CO₂ emissions (Scope 1 & 2), water consumption, waste management, employee numbers, diversity and governance practices. Depending on the module (Basic or Comprehensive), the requirements vary in scope, but are always designed to be practical and resource-efficient for SMEs.

The VSME standard consists of two modules:

Basic module: Contains minimum requirements for micro-enterprises, e.g. company structure, energy consumption, CO₂ emissions, water and waste management as well as social aspects such as employee numbers and diversity.
Comprehensive Module: Provides more detailed reporting, including business model, sustainability strategy, supply chain information and more comprehensive environmental and social data.

Companies can choose the right module depending on their needs and resources.

No, a materiality analysis is not mandatory under the VSME standard, but it is optional. In contrast to the ESRS, which require a comprehensive double materiality assessment, the VSME standard allows SMEs to decide for themselves which ESG topics are relevant to them and report on them. This saves time and reduces bureaucracy.

The standard enables SMEs to carry out simple, cost-efficient and standardized ESG reporting without the high requirements of the ESRS. It helps to document sustainability data transparently, facilitates access to financing and strengthens competitiveness. It also protects SMEs from excessive ESG requests from large companies and prepares them for future regulatory requirements.

The VSME standard enables SMEs to provide structured ESG reporting that meets the requirements of large business partners. As many corporations require ESG data from their suppliers, the standard helps to provide relevant sustainability information in a consistent manner, reduce bureaucracy and avoid unclear or excessive requests. This enables SMEs to improve their supply chain compliance and strengthen long-term business relationships.

Yes, the VSME standard can help SMEs with financing from banks, as many credit institutions include ESG criteria in their assessment. A standardized sustainability report according to VSME shows that a company operates sustainably, improves the ESG score and can lead to better credit conditions. It also increases transparency and strengthens the trust of investors and financial partners.

Companies should first understand the VSME standard and define an internal responsibility for ESG reporting. This is followed by an inventory of existing sustainability data (e.g. energy consumption, CO₂ emissions, employee numbers). They should then define a sustainability strategy, introduce a simple internal reporting system and, if necessary, take supplier and stakeholder requirements into account. Gradual implementation facilitates integration into existing processes.