The VSME Directive: Simplified sustainability reporting for SMEs

How should unlisted SMEs report on ESG?

Are CSRD requirements essential to align with reporting expectations? Fortunately, the answer is no!

Introduced in late 2024, the VSME (Voluntary European Sustainability Reporting Standards for non-listed SMEs) offers unlisted SMEs clear guidance on reporting sustainability-related topics in a structured yet accessible way. Using the VSME framework, SMEs can efficiently respond to increasing information requests from stakeholders such as financial institutions and supply chain partners.

Who can apply the VSME?

The VSME is available to all organisations that are not subject to the CSRD. It distinguishes between micro, small, and medium-sized enterprises, as outlined in the table below. An organisation is classified into one of these categories if it does not exceed at least two of the listed thresholds.

How does the VSME differ from the ESRS?

The key difference is that the VSME is voluntary and serves as a guideline rather than a mandatory framework. Organisations are not required to adopt it, and reports prepared under the VSME are not subject to external audits. However, the structure of the VSME aligns with the ESRS, incorporating proportionate and simplified reporting requirements.

The VSME consists of two modules that build upon each other:

• The Basic Module is designed as the appropriate level of reporting for micro-organisations and serves as an entry point for small and medium-sized enterprises.

• The Comprehensive Module expands on the Basic Module and provides additional reporting depth.

The comprehensive module builds on the basic module:

A notable feature of the VSME is its tabular format for reporting policies, practices, and future actions. SMEs indicate—via a simple yes/no dropdown—whether they have policies in place for specific ESG topics, whether these policies are publicly available, and whether they include defined targets.

The table can be further customized to include additional ESG themes relevant to the organisation, such as Biodiversity and Ecosystems, Circular Economy, Workforce, Value Chain Workers, Affected Communities, Consumers and End-Users, and Business Conduct.

If an SME chooses the Comprehensive Module, the reporting table is expanded to include:

• A brief description of policies and planned actions,
• Future initiatives, and
• The highest senior management level is responsible for their implementation.

While this approach demands more detail than the Basic Module, it remains significantly less burdensome than the ESRS criteria for policy disclosures.

What about ESG metrics?

The VSME framework retains all ESG themes covered in the ESRS but greatly reduces the number of social and governance metrics. Among environmental metrics, climate impact (ESRS E1) takes centre stage — aligning with the growing demand from external stakeholders for greater transparency on carbon footprints.

• The Basic Module includes data points for Scopes 1 and 2 carbon emissions.

• The Comprehensive Module extends reporting to Scope 3 emissions.

This approach reinforces that even non-CSRD-regulated organisations should include carbon footprint data in sustainability reports to provide a complete and transparent view of their sustainability efforts.

Why should SMEs adopt the VSME for sustainability reporting?

What is in it for you?

The VSME was developed to protect SMEs that are not subject to the CSRD but face increasing data requests from supply chain partners and financial institutions.

• In principle, an SME cannot be expected to provide more information than what is outlined in the VSME framework.

• CSRD-compliant companies cannot demand that SMEs have their ESG data externally audited—although SMEs may choose to do so voluntarily.

Beyond compliance, the VSME also creates opportunities for SMEs. It provides a practical, structured framework to consolidate key ESG information, ensuring a consistent and transparent approach when engaging with stakeholders. Additionally, it offers SMEs a platform to highlight key sustainability initiatives.

Do SMEs need to conduct a double materiality assessment under the VSME?

Unlike the ESRS, the VSME does not require a full double materiality assessment. However, it follows an "if applicable" principle, meaning that companies are expected to:

1. Assess how their operations impact people and the environment

2. Evaluate how environmental and social factors may affect their financial position.

• Learn more about double materiality

While this approach acknowledges both impact and financial materiality, the decision-making process and selection of relevant ESG topics remain flexible and free from external audit requirements. SMEs are expected to disclose relevant information at the policy, action, and metrics level, but they may omit non-applicable metrics from their sustainability reports.

Classification criteria for SMEs under the VSME:

Interested in exploring the VSME?

You can find the full guidelines here.

Need help getting started?

We’re here to support you! Get in touch to begin your VSME journey.