What does VSME stand for?

EFRAG's VSME Standard, empowering SMEs through voluntary sustainability reporting

VSME stands for the Voluntary standard for non-listed micro-, small and medium-sized companies (undertakings) as published by EFRAG.

The standard is aiming for improved management of sustainability issues SME's face i.e. environmental and social challenges such as pollution, workforce health and safety. This will support their competitive growth and enhance their resilience in the short-, medium- and long-term and contribute to a more sustainable and inclusive economy.

Why VSME?

The standard exists because of a fundamental data problem in the value chain. Large enterprises, banks, and investors increasingly need sustainability data from their suppliers to assess risk and make informed decisions about access to finance. But the vast majority of those suppliers, the SMEs that form the backbone of European supply chains, fall outside the scope of the Corporate Social Reporting Directive (CSRD) and have had no standardized way to provide it. The VSME standard was created to close that gap.

At its core, this is an inter-organizational data challenge. The value of sustainability data doesn't stop at the boundary of a large enterprise. It flows through supply chains, financing relationships, and investment portfolios. For that flow to work reliably, the data needs to be structured consistently at every link in the chain, including at the SME level.

VSME - who is it for?

The VSME applies to non-listed micro, small, and medium-sized companies. A company is considered micro if it stays below two of the following: €450,000 in balance sheet total, €900,000 in net turnover, or an average of 10 employees. A small company stays below two of: €5 million in balance sheet total, €10 million in net turnover, or 50 employees. A medium company stays below two of: €25 million in balance sheet total, €50 million in net turnover, or 250 employees.

These companies fall outside CSRD's mandatory scope, but using the VSME standard is strongly encouraged, and for many, it will effectively be a commercial requirement from their larger supply chain partners.

Key features of VSME:

• The VSME is voluntary
• Intended for companies with fewer than 250 employees
• Aligned with the European Sustainability Reporting Standards (ESRS)
• Covers the same Environmental, Social & Governance (ESG) topics
• Tailored to the size, capacity, and needs of SMEs

What does the VSME standard cover?

The standard focuses on helping SMEs manage and disclose their sustainability performance across the environmental and social challenges most relevant to their operations, from energy use and pollution to workforce health and safety. The goal isn't just compliance. It's supporting competitive resilience and growth in the short, medium, and long term.

Crucially, the standard was designed with consistency in mind. EFRAG took care to align VSME data points with the ESRS standards that apply to large companies, meaning data collected under VSME is structured to be compatible with what large enterprises need to fulfill their own reporting obligations. This is exactly the kind of deliberate standardization that makes inter-organizational data exchange possible.

Why consistency with ESRS matters

One of the most important aspects of the VSME is that EFRAG deliberately designed it to be consistent with the ESRS standards that apply to large companies. This wasn't incidental, it reflects a recognition that sustainability data needs to flow reliably through supply chains, not just within individual organizations. When an SME structures its data using VSME, a large enterprise receiving that data can integrate it into their own ESRS reporting without reconciliation or rework. This is precisely the kind of inter-organizational standardization that makes the difference between data that is merely reported and data that is actually trusted and usable across organizational boundaries.

The two VSME modules

The VSME gives organizations two pathways. The Basic Module covers 11 disclosure requirements and serves as the entry level for all SMEs, it is the target approach for micro-undertakings and the minimum requirement for everyone else. It focuses on the sustainability indicators most commonly requested by value chain partners: GHG emissions at Scope 1 and 2, core environmental metrics, own-workforce data, and anti-corruption disclosures. Notably, the Basic Module does not include any requirements relating to an organization's value chain, that comes later.

The Comprehensive Module adds 9 further disclosure requirements on top of the Basic Module, which must be completed first. These are the data points most likely to be requested by banks, investors, and large corporate clients who need a fuller picture. They include a description of sustainability practices and future initiatives, GHG reduction targets and climate transition plans, confirmed value chain incidents, and disclosures relating to exclusion from EU reference benchmarks. This is where inter-organizational sustainability data genuinely deepens, moving from a snapshot of internal operations to a structured view of how an SME manages its relationships, risks, and commitments across its value chain.

Voluntary, but increasingly expected

The VSME carries no legal authority, unlike ESRS, compliance is not mandated. But for SMEs embedded in the supply chains of large enterprises subject to CSRD, the practical dynamic is clear. When your customers are required to report on their value chain and need structured supplier data to do so, your ability to provide that data becomes a commercial consideration.

Organizations that structure their sustainability data consistently from the start, with proper classification, validation, and audit trails, are in a much stronger position to respond to these requests, regardless of which framework is asking for them.

Source:

European Financial Reporting Advisory Group (EFRAG). (2024). VSME Standard.