The VSME Standard: Why It’s Currently Regarded as the Most Pragmatic ESG Framework

Sustainability reporting is no longer a topic reserved for listed giants and multinational corporations. With the release of the new Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) by EFRAG in December 2024, the European reporting landscape has taken a significant turn toward inclusivity. For the first time, small and medium-sized enterprises (SMEs) — which make up 99% of all businesses in the EU — are equipped with a proportionate, purpose-built framework to voluntarily report on sustainability matters.

So, what does this mean in practice for Europe’s 25 million SMEs — and why is VSME emerging as the most pragmatic framework available today?

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What Is the VSME Standard and Why Was It Introduced?

The VSME Standard, developed by the European Financial Reporting Advisory Group (EFRAG), is a voluntary framework designed for non-listed micro, small, and medium-sized enterprises that are not subject to the EU’s Corporate Sustainability Reporting Directive (CSRD). It is not a legal obligation but a practical tool designed to meet growing demands for transparency from large corporate customers, financial institutions, and regulators.

The standard aims to:

• Enable SMEs to respond efficiently to ESG data requests from banks and larger clients.
• Improve their access to green financing by standardizing disclosures.
• Support better internal sustainability management and risk identification.
• Help SMEs prepare for future regulatory developments, including CSRD-like expectations being passed down supply chains.

Importantly, it recognizes the limited administrative capacity of SMEs, offering a simplified structure with two tiers: a Basic Module and a more ambitious Comprehensive Module.

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Who Is It For?

The VSME standard is intended for:

• Micro-enterprises: ≤ €450,000 balance sheet, ≤ €900,000 turnover, ≤ 10 employees.
• Small enterprises: ≤ €5 million balance sheet, ≤ €10 million turnover, ≤ 50 employees.
• Medium-sized enterprises: ≤ €25 million balance sheet, ≤ €50 million turnover, ≤ 250 employees.

Unlike CSRD, which mandates extensive reporting from listed and large undertakings, VSME targets non-listed SMEs — including sole proprietors, partnerships, and family businesses — who are feeling pressure from CSRD-obligated clients to provide ESG data across supply chains.

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Structure and Scope: Two Modular Options

1. Basic Module (B1–B11)
This is the entry point and minimum recommendation. It includes:

• General company info, sector, locations, and sustainability goals.
• Key environmental metrics: energy use, GHG emissions, pollution, water, biodiversity, waste.
• Social metrics: workforce size, diversity, health & safety, training, and pay equity.
• Governance metrics: convictions or fines related to corruption or bribery.

2. Comprehensive Module (C1–C9)
Optional and more detailed, this module aligns with financial stakeholders' expectations and adds:

• Business strategy and sustainability integration.
• Climate transition plans, Scope 3 emissions, and climate risk assessment.
• Human rights policies, supply chain oversight, gender diversity, and sector exclusions.

Companies can choose to report just the Basic Module, or both.

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Why This Matters for SMEs — Even Voluntarily

While not mandatory, VSME reporting is already becoming a de facto requirement for SMEs operating in supply chains of larger, CSRD-regulated clients. These clients must report not just on their own ESG data but also on that of their suppliers (Scope 3 emissions, value chain risks, etc.).

In this context, adopting the VSME standard:

• Avoids client churn from larger buyers needing ESG-compliant partners.
• Simplifies the administrative burden of ad-hoc ESG requests.
• Improves investment attractiveness, particularly for green finance or public tenders.
• Enables early strategic alignment with ESRS and CSRD logic.

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Key Metrics SMEs Should Prepare For

The standard provides clear expectations for what sustainability information SMEs should collect. Some examples from the Basic Module include:

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Energy & GHG: Total energy use by source (MWh); Scope 1 & 2 emissions in tCO₂e.

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Pollution: Type and mass of pollutants to air, water, and soil, if applicable.

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Biodiversity: Number and area of sites in or near biodiversity-sensitive zones.

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Water: Water withdrawal volumes, especially in high-stress regions.

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Workforce: Gender ratio, health & safety incidents, turnover, training hours.

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Governance: Number and amount of fines for corruption or bribery violations.

For SMEs with more capacity or investor interest, the Comprehensive Module also addresses Scope 3 emissions, GHG reduction targets, climate risks, and revenues from high-emission sectors.

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Looking Ahead: Should SMEs Act Now?

Yes — because voluntary is not the same as optional in a market driven by compliance-by-association. Even if you're not in scope, your clients may be, and banks and investors will increasingly expect VSME-level insights.

In fact, EFRAG has explicitly stated that this standard is meant to pre-empt the mounting ESG data requests facing SMEs. It is also future-proofed — built with compatibility to Taxonomy Regulation, ESRS, and CSRD Article 29 expectations.

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Conclusion: Why VSME Is the Most Pragmatic ESG Framework Today

The VSME Standard strikes a unique balance between regulatory alignment and practical feasibility. Unlike heavier frameworks designed for large corporations, VSME speaks directly to the realities of smaller businesses:

• It offers structure without red tape.
• It aligns with existing EU sustainability architecture, preparing SMEs for downstream CSRD demands.
• It enables incremental learning and reporting, allowing businesses to start with the basics and grow over time.
• And crucially, it ensures market relevance by aligning with banks, public procurement rules, and corporate buyer expectations.

For any SME beginning its sustainability journey, the VSME is the most accessible, credible, and future-proof starting point available today.