The European Commission has introduced the Voluntary Standard for SMEs (VSME), a new sustainability reporting standard designed to facilitate micro-, small-, and medium-sized enterprises in reporting ESG issues consistently and simply. This initiative enables these businesses to respond effectively to sustainability information requests from financial institutions and larger companies.
Initially developed to offer a voluntary reporting framework for smaller companies outside the EU’s Corporate Sustainability Reporting Directive (CSRD), the VSME may now be pertinent to a wider range of businesses. This change follows the Commission’s Omnibus initiative, which aims to significantly reduce the number of companies subject to the CSRD.
The European Financial Reporting Advisory Group (EFRAG) released the new standard last year. EFRAG was tasked by the Commission to develop the European Sustainability Reporting Standards foundational to the CSRD, as well as voluntary standards for non-listed SMEs. These SMEs, while not covered by the CSRD, are increasingly required to provide sustainability-related information to larger companies and banks seeking ESG and climate data from their value chains.
Key objectives of the VSME, as outlined by EFRAG, include enabling SMEs to meet data requests from larger companies, providing information to banks and investors to improve access to finance, and assisting SMEs in managing their sustainability issues. The initiative also aims to foster a more sustainable and inclusive economy.
The VSME consists of two modules. The “Basic” module, designed as an entry-level framework, includes 11 disclosures focused on essential sustainability indicators, such as Scope 1 and 2 emissions and anti-corruption measures. The “Comprehensive” module adds nine more disclosures typically requested by banks, investors, and value chain partners, including GHG reduction targets, transition plans, and summaries of ESG practices or future initiatives.
Developed for companies with fewer than 250 employees, the VSME aligns with the CSRD threshold for mandatory sustainability reporting. However, in February 2025, the Commission released its Omnibus I package, aiming to significantly reduce sustainability reporting obligations for companies. The Omnibus initiative proposes limiting the CSRD’s scope to companies with over 1,000 employees, potentially exempting around 80% of businesses from mandatory sustainability reporting. Some lawmakers have suggested raising this threshold further, excluding all but the largest companies from the CSRD.
The Commission has also instructed EFRAG to create new, simplified European Sustainability Reporting Standards (ESRS). EFRAG’s proposed updates could reduce sustainability reporting datapoints by nearly two-thirds.
For companies no longer within the CSRD’s scope, the Omnibus plans to introduce voluntary sustainability reporting requirements based on the VSME. Under this proposal, the VSME standards will also serve as a “value-chain cap,” limiting the detail of sustainability information that banks or larger companies can request from smaller companies in their value chains.
In a Q&A accompanying the VSME adoption recommendation, the Commission withheld specifics on whether future voluntary standards for companies outside the CSRD post-Omnibus will differ from the VSME, noting only that “certain changes may be necessary,” contingent on the final CSRD scope and ESRS revisions.
