Introduction

Small and medium-sized enterprises (SMEs) are the backbone of the European economy. They make up more than 99% of all businesses and employ two-thirds of the workforce. Yet, when it comes to sustainability reporting, SMEs often struggle. Large companies now face strict obligations under the Corporate Sustainability Reporting Directive (CSRD), but SMEs are mostly left outside its scope — at least for now.

Despite this, SMEs increasingly feel the pressure to provide environmental, social, and governance (ESG) data. Supply chain partners, investors, and even public buyers want to know whether SMEs are aligned with the European Green Deal. To help them, the European Financial Reporting Advisory Group (EFRAG) created the Voluntary Sustainability Reporting Standard for SMEs (VSME).

The VSME is a flexible, proportional, and EU-backed framework that allows SMEs to begin reporting on sustainability in a way that is credible but not overwhelming. This article explains what the VSME is, how it works, why it matters, and how your company can use it to build trust, competitiveness, and resilience.

What is the VSME?

The VSME standard was published in 2024 by EFRAG and endorsed by the European Commission. It was created to make sustainability reporting accessible to SMEs while staying consistent with European regulations.

According to the official VSME standard, it is designed for:

• SMEs outside the mandatory scope of the CSRD.
• Companies needing to provide ESG data to banks, investors, or supply chain partners.
• Businesses that want to gradually prepare for possible future regulation.

Guiding principles

The VSME is built around four core principles (EFRAG, 2024):

• Voluntary – Companies can choose whether and how to adopt it.
• Proportional – Requirements are realistic for SMEs with limited resources.
• Credible – It aligns with EU sustainability policies and investor needs.
• Flexible – Modular design allows companies to expand reporting over time.

These principles ensure SMEs can build up their sustainability journey step by step.

How Does the VSME Work?

The VSME uses a three-module structure that SMEs can adopt gradually:

• Basic Module: Covers essential quantitative disclosures such as greenhouse gas emissions, energy consumption, workforce size, and governance basics. This is often enough to meet investor and customer requests.
• Narrative Module: Adds qualitative information, including company policies, risk assessments, and sustainability strategies. It gives context to the numbers and demonstrates responsible management.
• Expanded Module: Provides more advanced disclosures aligned with the European Sustainability Reporting Standards (ESRS) under CSRD. It is designed for SMEs preparing for international growth or higher regulatory expectations.

Example in practice

Imagine a small logistics SME supplying services to a multinational retailer. Initially, the retailer only asks for basic CO₂ emissions data, which the SME can report under the Basic Module. Later, the retailer requires proof of policies on employee well-being and supply chain risks — covered by the Narrative Module. If the SME expands internationally, it can then use the Expanded Module to align with CSRD.

This tiered approach ensures SMEs can deliver what is needed today, while building toward tomorrow’s requirements.

Why is the VSME Important for SMEs?

SMEs increasingly face requests for ESG information. Without a structured framework, this often results in ad hoc questionnaires, duplicated efforts, and higher costs. VSME solves these challenges by offering:

• Simplification – One framework reduces repetitive requests.
• Credibility – Using an EU-recognised standard builds trust with stakeholders.
• Future-readiness – Prepares SMEs for potential CSRD expansion.
• Market advantage – Increases competitiveness in procurement and tenders.
• Access to finance – Investors and banks are more confident when SMEs provide standardised ESG data.

As the European Commission Q&A highlights, VSME is not just about compliance — it is a tool for resilience and growth.

VSME in Relation to Other Frameworks

VSME vs CSRD

The CSRD applies to large companies and listed SMEs, requiring extensive disclosures based on double materiality. With the Omnibus revision of 2024, it is still uncertain whether and to what extent CSRD will apply to smaller SMEs. VSME is therefore a safe and credible starting point — voluntary, but compatible with CSRD’s direction.

In short: CSRD is mandatory, complex, and resource-heavy; VSME is voluntary, simplified, and scalable.

VSME vs SFDR

The Sustainable Finance Disclosure Regulation (SFDR) requires investors to disclose sustainability risks in their portfolios. For this, they need ESG data from the companies they invest in — including SMEs. By adopting VSME, SMEs make themselves more attractive to banks, private equity, and other financiers.

VSME vs Other Standards

• GRI Standards: global, but often too complex for smaller organisations.
• ISO 14064 (carbon) and ISO 26000 (social responsibility): strong, but more technical and narrower in scope.
• GHG Protocol: key for emissions measurement, complementary to VSME reporting.
• CO₂ Performance Ladder: procurement-focused, while VSME offers broader ESG coverage.

Benefits of Using the VSME

The VSME helps SMEs both internally and externally:

• Efficiency – avoids repeated bespoke ESG questionnaires.
• Trust – EU recognition increases credibility.
• Tendering power – helps win contracts where sustainability criteria matter.
• Financial access – provides banks and investors with reliable ESG data.
• Internal value – centralises ESG data, improves awareness, and drives improvement.

Practical Steps for Implementing the VSME

Adopting VSME can be broken into four steps:

• Step 1: Assess readiness – map what ESG data you already have and identify gaps against the VSME Basic Module.
• Step 2: Choose your module – start with Basic disclosures, then expand into Narrative and Expanded when required by clients or financiers.
• Step 3: Align with existing frameworks – integrate CO₂ Performance Ladder, ISO certifications, or GHG Protocol into your reporting to avoid duplication.
• Step 4: Use digital tools – Ecocharting software helps SMEs streamline ESG data collection and reporting, ensuring compliance with VSME and beyond.

Future Outlook of the VSME

Looking ahead, the VSME is expected to play a central role in SME sustainability:

• Alignment with the European Green Deal goals for 2030 and 2050.
• Gradual adoption across European supply chains as a standard request for ESG data.
• Integration into financial decision-making by banks and investors.
• Potential transition from voluntary to partly mandatory requirements in the future.

Conclusion

The VSME standard is more than a reporting tool: it is a strategic opportunity for SMEs to strengthen credibility, improve competitiveness, and prepare for the future. While it is voluntary today, aligning with VSME means being ready for tomorrow’s expectations.

Ecocharting software helps SMEs translate sustainability reporting into business advantage — from VSME adoption to CSRD readiness. Contact us today to start your VSME journey.