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Voluntary Sustainability Reporting for SMEs (VSME)

Mark Lumsdon-Taylor · Posted on: December 23rd 2025 · read

Why is VSME important?

The VSME is a new European standard for sustainability reporting.

SMEs (Small to medium-sized enterprises) remain the backbone of the European economy with almost two-thirds of employees in the EU working for an SME.

According to Statista, over half of all added value in the European economy is from SMEs.

SMEs are classified as either micro-sized enterprises (employing between =zero and 9 people), small businesses (employing 10 – 49 people) and medium-sized businesses (employing 50 – 249 people). The vast majority of EU businesses belong to the smallest category, which account for 24.46 million of the 26.1 million SMEs across the EU.

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Sustainability & ESG

Whilst large companies are mandated to take climate change and ESG action, and to report progress, many EU SMEs are not.

The reasons are manifold, including lack of investment funds, lack of resources and lack of staff availability. However, it is clear that the sheer volume of EU SMEs means their contribution to global warming and climate change must be significant, as is their potential contribution to climate change mitigation.

What is VSME?

Bearing in mind the pressure on many SME finances and resources, the EU has elected to introduce a voluntary sustainability reporting standard, recognising the importance of EU SMEs in climate change mitigation.

VSME, a voluntary sustainability reporting framework, is designed specifically for SMEs to enable them to report on their sustainability performance in a structured and comparable way.

VSME has been developed by the European Financial Reporting Advisory Group (EFRAG) so it complies with the aims of other EU sustainability reporting frameworks, and the umbrella aims of the European Green Deal.

VSME provides a simplified and proportionate reporting tool that streamlines ESG disclosures. It does not require SMEs to publicly disclose their reporting.

Why is sustainability reporting important for SMEs?

"For many SMEs sustainability reporting may be considered as simply the ‘right thing to do’ in a world increasingly affected by climate and weather extremes resulting from global warming. For others, VSME may be viewed as making it easier for SMEs to access financing and business opportunities."

Mark Lumsdon-Taylor, Executive Development & Sustainability Lead

The following list is not exhaustive, but it gives some idea of the benefits that can accrue to companies reporting, and actively managing, their sustainability:

Advantage when tendering many tendering systems now include additional positive weighting for companies engaged with sustainability reporting.
Improved business efficiency engagement with sustainability actions often results in business efficiency gains, particularly for organisations moving towards circular economy principles.
Beneficial business loans many lending institutions give preferential treatment to applications from pro-active sustainability-driven organisations, or for sustainability investments. Sustainability is increasingly becoming an important criteria in business finance and lending.
Improved competitive advantage businesses engaged with robust sustainability programmes can often gain advantage over their less committed competitors. Equally, firms that fail to engage with ESG and sustainability may find themselves at a competitive disadvantage.
Improved impact investment most investors and stakeholders want to know more than just a business’s financial metrics – they want to see its sustainability aims and performance, and its climate and nature related impacts. Their engagement with a business can be influenced accordingly.
Meeting staff and stakeholder expectations many staff members, customers and consumers now expect the orgaisations they engage with to be actively sustainable. Failing to meet these expectations can lead to loss of custom, poor staff retention and failure to attract some talent.
Meeting customer needs if a company’s customers include large enterprises then it is certain that they will be reporting Scope 1, Scope 2 and Scope 3 greenhouse gas emissions. Remember, your Scope 1 and Scope 2 emissions are part of your customers’ Scope 3 emissions. Failing to engage with sustainability may lead to your company being downgraded amongst your customers.
Marketing and PR a strong sustainability programme can provide almost endless opportunities to communicate in a positive way with staff, customers, consumers and stakeholders, raising business and brand profile in a confident and affirmative way.
Leadership organisations engaged in robust and pro-active sustainability actions, based on solid sustainability risk assessment and planning, are often likely to be viewed as leadership entities – businesses that customers and consumers are likely to want to engage with.
Best practice being the best a business can be makes a compelling statement about business sustainability and the value that company can offer customers, consumers , staff and other stakeholders. It also demonstrates that the entity is looking to the future and assuring its own business sustainability.

Although the above list is not exhaustive, it is easy to see the value in VSME for smaller organisations and the reason why its introduction is welcome.

VSME status

The European Commission adopted recommendations for voluntary sustainability reporting guidance to protect small and medium-sized companies from excessive non-financial requests from larger corporates requiring sustainability data for their own reporting.

The VSME voluntary standard built on the work the Commission has been undertaking on its Omnibus drive to streamline corporate sustainability reporting.

Organisations required to report under the Corporate Sustainability Reporting Directive (CSRD) will need to request climate-related information from their value chain. The VSME provides a ‘cap’ to protect SMEs and other non-mandated companies from having to respond to excessive information requests.

The Commission has made it clear that large organisations seeking information from SMEs should base their requests on the VSME recommendations.

Unlike CSRD, VSME is entirely voluntary but the advantages it offers is likely to lead to many more SMEs reporting. VSME is not a regulatory requirement, but it can be viewed as a strategic opportunity for SMEs looking to stay competitive, attract financing and future proof their business.

Until the appearance of VSME, SMEs had no appropriate regulatory framework they could follow. As more companies began reporting Scope 3 emissions, which include value chain, this was placing increasing pressure on SMEs to report, and placing those that could not at a disadvantage.

The VSME tackles this issue head on, enabling SMEs to report in a proportionate way and, in doing so, to contribute to global warming and climate change mitigation, business sustainability and enabling SMEs to meet customer requirements. It enables EU SMEs to reduce their reporting burden and also to attract investors and lenders as well as integrating sustainability throughout the EU business system.

Two reporting models

VSME offers two reporting modules:

The Basic Module

Covering 11 key disclosures, acting as a minimum reporting level for all SMEs.

The Comprehensive Module

Adding a further 9 disclosures for SMEs wanting to report more detailed sustainability information.

The Basic Module provides a streamlined, practical approach to ESG and sustainability reporting and comprises:

Category	Disclosure	Composition
General Information	Basis for preparation	State the reporting framework selected (Basic or Comprehensive) and general company details such as legal status, turnover, number of employees.
	Sustainability practices and plans	Describe the company’s sustainability-related policies and planned improvement actions.
Environmental metrics	Energy and greenhouse gas emissions	Report total energy consumption and direct (Scope 1) and indirect (Scope 2) greenhouse gas emissions.
	Pollution	Disclose pollutants emitted to the environment if required by regulations or by voluntary reporting regimes.
	Biodiversity	Report whether business sites are in or near biodiversity-sensitive areas.
	Water	Report water consumption and withdrawals, especially in water-stressed areas.
	Resources use & the circular economy	Report waste generation, recycling and circular economy initiatives (reuse, recycle, repurpose).
Social metrics	Workforce (general)	Provide employee data, including full/part-time breakdown and gender distribution.
	Health and safety	Report workplace incidents including work-related injuries and fatalities.
	Remuneration and rights	Disclose minimum wage compliance, pay gaps, union representation, and employee training hours.
Governance metrics	Anti-corruption	Report any corruption-related convictions and financial penalties as an indication of the company’s approach to corporate governance and ethical conduct.

The Comprehensive Module adds a further 9 disclosures to the Basic Module, for SMEs seeking enhanced reporting that may be of particular value for those seeking green financing, for partnerships and sustainability-driven organisations, or for those seeking to align to investor expectations.

Category	Disclosure	Composition
General Information	Strategy, business model, sustainability	Disclose the business model and key sustainability initiatives that are part of the business strategy.
	Policies & future transition initiatives	Describe sustainability-related policies and planned sustainability improvements.
Environmental metrics	Greenhouse gas reduction targets and climate transition	Disclose specific targets for reducing GHG emissions and the strategy for transitioning towards a low-carbon business model.
	Climate risks	Assess and report exposure to climate-related risk, including physical risks (ie weather extremes) and transition risks (ie regulation).
Social metrics	Workforce additional characteristics	Details beyond the Basic Module such as employment type and breakdown by contract type and region.
	Human rights policies and processes	Disclose company policies related to human rights including labour rights protection, non-discrimination measures and grievance processes.
	Severe human rights incidents	Report any confirmed incidents of severe human rights violations such as forced labour, child labour or similar.
Governance metrics	Revenues and EU benchmark exclusions	Disclose revenue from sectors such as fossil fuels, tobacco or other industries considered to be high-impact. Report whether the company is excluded from EU sustainability reference benchmarks.
	Gender diversity in governance	Disclose the gender composition of governance bodies including senior leadership and at board level.

The module an SME chooses to report under will be determined by individual circumstances.

Organisations seeking to meet basic ESG expectations or simplify sustainability reporting for clients or lenders will choose the Basic Module.

Those wishing to secure investment from sustainability-focused investors or position the company as a sustainability leader, are more likely to follow the Comprehensive Module.

The features of VSME

No materiality assessment required

Simplified language and reporting system

Modular approach to data collection

No mandatory public disclosure

Key benefits of VSME reporting

Simplicity saves time and money
Reduced ESG reporting burden – a single standardised framework to avoid varying requests.
Improved access to financing – sustainability commitments are often more attractive to banks, investors and funding programmes.
Strengthening of business relationships – meeting supply chain sustainability requirements, reducing the risk of contract loss due to non-compliance, and building trust with clients and business partners.
Preparation for future regulations – although VSME is currently a voluntary reporting requirement, ESG and sustainability reporting is evolving rapidly and companies embarking on VSME reporting now will be more likely to adapt to future demands. VSME is also often viewed as a ‘stepping sone’ to future compliance, enabling SMEs to build their ESG capabilities in a proportionate and cost-efficient way.
Enhanced market position – demonstrating sustainability commitment can enhance business and brand reputation, attract customers and partners that prioritise responsible business practices, and enable a company to stand out from competitors with lower sustainability performance.

Key steps EU SMEs need to take

If, after reading this article, you feel that VSME might be appropriate for your organisation, there are a number of key steps you will need to take. These include:

Determine whether VSME is relevant and beneficial to the business.
Choose the reporting level that suits the company’s aspirations and customer requirements.
Ensure processes are in place to efficiently gather the required data.
Prepare the VSME report and share it with relevant stakeholders; including any marketing activity.
Ensure relevant staff are trained in VSME reporting requirements.
Ensure the business remains up-to-date with regulatory changes and ESG expectations.

In conclusion

VSME is a welcome initiative for SMEs on many levels. The simplification of sustainability reporting should be most welcome, as should the standardisation of reporting metrics, enabling SMEs to avoid multiple-reporting for different circumstances and against differing customer and other organisation demands.

Our expert's final thoughts

"It is also important that VSME aligns with other EU sustainability initiatives, together with the overarching European Green Deal, thereby allowing SMEs to participate in a proportional way in the sustainability goals and objectives the EU has publicly declared, in order to address the impacts of climate change, global warming and nature degradation that affect individuals and all business alike."

Mark Lumsdon-Taylor, Executive Development & Sustainability Lead