EU commission adopts voluntary sustainability reporting standard for small companies
The European Commission has introduced a new voluntary sustainability reporting standard for small and medium-sized enterprises (SMEs), aimed at helping these businesses respond to increasing demands for sustainability-related information. This new standard, known as the Voluntary Standard for Micro, Small, and Medium-sized Enterprises (VSME), will allow SMEs to report on Environmental, Social, and Governance (ESG) issues in a simpler, more consistent way.
Initially, the VSME was designed to provide a reporting framework for businesses that fall outside the scope of the EU’s Corporate Sustainability Reporting Directive (CSRD). However, due to the Commission’s Omnibus initiative, which seeks to reduce the number of companies required to follow the CSRD, the VSME could apply to a broader range of businesses.
The VSME was developed by the European Financial Reporting Advisory Group (EFRAG), which is also responsible for creating the European Sustainability Reporting Standards that underpin the CSRD. The aim of the VSME is to offer a voluntary reporting tool for SMEs, who are increasingly being asked for ESG data by large companies and banks.
The key objectives of the VSME are to help SMEs manage sustainability challenges, improve access to finance, and contribute to a more sustainable and inclusive economy. The standard offers two modules:
- Basic Module: This entry-level module consists of 11 disclosures focusing on key sustainability indicators that are frequently requested by value chain partners. These include data on Scope 1 and 2 emissions and anti-corruption policies.
- Comprehensive Module: This more detailed module includes 9 additional disclosures, such as greenhouse gas (GHG) reduction targets, transition plans, and descriptions of ESG practices and future initiatives.
The VSME is primarily designed for businesses with fewer than 250 employees, the same threshold used by the CSRD. However, in February 2025, the Commission proposed changes under the Omnibus initiative, which would raise the CSRD threshold to include only companies with over 1,000 employees, effectively removing 80% of companies from the regulation.
For businesses no longer covered by the CSRD, the VSME will provide a voluntary framework for reporting. It will also serve as a “value-chain cap,” limiting the amount of detailed sustainability information that larger companies or banks can request from smaller companies within their supply chains.
The European Commission has made it clear that changes may be made to the voluntary standards in the future, depending on the final agreement on the scope of the CSRD and updates to the European Sustainability Reporting Standards (ESRS).
