The European Commission has adopted the new voluntary sustainability reporting for small and medium-sized companies (SMEs). The Voluntary Sustainability Reporting Standard for SMEs (VSME) offers relief to thousands of SMEs swamped by growing environmental and social data demands. The European Financial Reporting Advisory Group (EFRAG) designed the VSME to help non-listed companies respond more efficiently to requests from banks, investors, and large corporate clients.
Sustainability has long been perceived as a “large company problem”. But many of the SMEs are critical suppliers to large companies. Yet their voices remain largely absent from ESG dialogues. They are increasingly caught in the crossfire of regulatory trickle-down effects, investor expectations, and supply chain demands. Most don’t have the luxury of a sustainability officer, let alone a reporting team.
While large listed companies in the EU are already required to disclose sustainability data under the Corporate Sustainability Reporting Directive (CSRD), most SMEs are not covered by the regulation. Nonetheless, many still face growing scrutiny from customers, lenders, and supply chains who need ESG data for their own reporting. The VSME targets exactly these non-listed SMEs. Think of VSME as ‘ESG for the rest of us’.
Many small businesses are increasingly asked to provide sustainability information, especially by larger companies subject to EU rules. “The VSME offers a proportionate, voluntary solution for companies that fall outside the EU’s mandatory sustainability reporting requirements”, said EFRAG in a statement.
What is VSME?
VSME is a voluntary, simplified, and scalable ESG reporting framework designed specifically for non-listed micro, small, and medium-sized enterprises. It reduces jargon, tailors disclosures to SME contexts, and provides a clear stepping stone into formal ESG ecosystems without being overwhelming. It is meant as a “market-driven” tool for companies that want to demonstrate sustainability credentials without the administrative burden of a full CSRD-compliant report.
The VSME framework is built on four guiding principles:
- it is materiality-focused, tailoring disclosures to what is most relevant by sector and scale (e.g., water use in agriculture or labour practices in manufacturing).
- It is scalable and modular, allowing SMEs to start small and expand reporting as they grow.
- The language is simplified and accessible, making it easier for all businesses to engage.
- Finally, it is alignment-ready, designed to serve as a stepping stone toward full ESRS and CSRD compliance. It’s not about perfection. It’s about progress.
The standard offers two modules to suit the maturity and needs of different SMEs: the Basic Module and the Comprehensive Module.
Basic module
Designed for micro and small enterprises, the Basic module includes 11 disclosures. SMEs choose between reporting only the Basic Module (Option A) or both modules (Option B). SMEs may omit disclosures that are not applicable or contain sensitive information. It covers sustainability practices, existing policies, and future goals. Environmental metrics include energy use, emissions, pollution, biodiversity, water, and waste. Social metrics focus on workforce characteristics, health and safety, and fair labour. Governance reporting includes any corruption-related convictions or fines.
Comprehensive module
The optional Comprehensive module is meant for SMEs seeking finance, buyers, or deeper ESG alignment. It adds 9 disclosures covering business strategy, governance accountability, climate targets, and risk management. It also includes expanded social reporting on human rights, diversity, and incidents, along with disclosures on controversial sector revenues and gender diversity in leadership.
Access to finance
Although the VSME is voluntary, EFRAG hopes it will gain traction as a de facto market standard. Especially among SMEs that want to get ahead of regulatory trends or meet the expectations of sustainability-conscious partners.
Supporters of the VSME standard say it could improve SMEs’ access to finance and new markets. ESG performance is increasingly influencing procurement, investment and credit decisions. Standardised reporting could help SMEs compete on more equal footing. “Transparency is becoming part of the license to operate,” said one stakeholder during the public consultation. “Without a structured reporting tool, SMEs risk being left behind.”
The EFRAG-project of the new VSME standard began in late 2022. EFRAG’s Sustainability Reporting Technical Expert Group endorsed the final version in October 2024. The Sustainability Reporting Board approved it the following month. It followed a broad consultation that included more than 300 survey respondents, dozens of field tests and input from platforms representing over 23,000 SMEs across Europe.
EFRAG says the aim is to replace the multiple, inconsistent and costly ESG questionnaires that SMEs often face with a unified, practical framework.VSME is part of the EU’s broader efforts to create a more inclusive and efficient sustainability reporting ecosystem.