VSME explained – The voluntary sustainability standard for SMEs

What is the VSME?

In the context of the Corporate Sustainability Reporting Directive (CSRD), the European Financial Reporting Advisory Group (EFRAG) has developed a voluntary sustainability standard for small and medium-sized enterprises (SMEs) - the Voluntary Standard for Small- and Medium-sized Enterprises (VSME).

To ease the burden on SMEs, they are not subject to the CSRD and can voluntarily decide whether to report under the VSME. The VSME is designed to help SMEs navigate the process of collecting essential non-financial information and key metrics, providing them with support. Additionally, a selective use of disclosure requirements of the standard is also possible.

The content of the VSME is aligned with the European Sustainability Reporting Standards (ESRS), which serve as the mandatory reporting framework under the CSRD. However, the VSME has been designed proportionally to account for the specific needs and resource constraints of smaller businesses.

Objectives of the VSME

The standard pursues four main objectives:

1. Support in providing sustainability information in the supply chain. SMEs can more easily provide the sustainability data that large companies expect from their suppliers.
2. Improved access to finance. By disclosing relevant sustainability information in a structured way, SMEs meet the expectations of banks and investors, thereby enhancing their financing opportunities.
3. Strengthening sustainability management. The VSME helps SMEs to specifically address environmental and social challenges, such as pollution or workforce health and safety. This strengthens their growth and increases their resilience in the short, medium, and long term.
4. Contributing to a more sustainable and inclusive economy. SMEs are supported in strengthening their role as drivers of a more future-proof and fairer economy.

Relevance of the VSME under the EU Commission’s Omnibus Proposal

The EU Sustainability Omnibus I, finalized by the European Commission in February 2026, has fundamentally reshaped the European sustainability reporting landscape. The proposal aims to reduce the administrative burden on companies and strengthen their competitiveness.

Under the CSRD, the Omnibus proposal introduces key threshold adjustments:

• Applies to EU companies with more than 1,000 employees and more than €450M in revenue (Wave 1 companies are already subject to reporting requirements; Wave 2 from financial year 2027).
• Non-EU companies are subject to reporting from financial year 2028 if they generate more than €450M in revenue in the EU and have an EU subsidiary or branch with more than €200M in revenue.
• Companies outside the scope may voluntarily report under the VSME standard.
• Member states may exempt Wave 1 companies below the thresholds for 2025 and 2026. The current German CSRD draft legislation provides for this. However, the NFRD as the predecessor regulation still applies in Germany.
• Climate Transition Plans remain part of the CSRD.

The VSME standard plays an important role in this context: it offers smaller companies a structured, resource-efficient way to provide the required sustainability information without having to meet the full ESRS requirements. The VSME acts as a shield — a so-called "value chain cap". This means that the VSME today (and in future, the new voluntary standard based on the VSME) defines the maximum requirements that CSRD-obligated companies may demand from their non-CSRD-obligated suppliers. It thereby sets the upper limit for the sustainability information that larger companies may request from their supply chain.

For smaller companies, this means that a sustainability report under the VSME standard serves as a shield against demands for additional information from larger business partners — with the exception of industry-specific information that is customary in the sector. Ensuring the value chain cap will be monitored by the EU member states themselves.

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Potential Developments in the VSME

Currently, there is no official translation of the VSME into other EU languages, and it remains unclear if and when this will happen. Additionally, the VSME could become more complex with the new Omnibus Package, in order to meet the expanded reporting and transparency demands. This could lead to adjustments in the modules to maintain both user-friendliness and content depth. Lastly, as mentioned above, the VSME will be revised to apply to companies with fewer than 1,000 employees, expanding the scope beyond those with fewer than 250 employees.

Structure of the VSME: Basic vs. Comprehensive Module

The VSME consists of two modules: the Basic Module and the Comprehensive Module.

Basic Module

As the name suggests, the Basic Module provides an entry-level approach to sustainability reporting for SMEs. It uses simplified language and includes 11 disclosure requirements — including narrative disclosures and metrics — significantly fewer than the ESRS under the CSRD. The disclosure requirements are aligned with the ESG topic blocks (Environment, Social, and Governance). Companies wishing to report according to the VSME should address all the disclosure requirements of the Basic Module.

Comprehensive Module

The Comprehensive Module builds upon the Basic Module, which must be applied first. It includes nine additional disclosure requirements and uses sustainability-related financial data points as proxies. These proxies serve as simplified indicators to measure the ESG performance of the SME and facilitate access to sustainable financing.

The disclosure requirements of the Comprehensive Module should only be considered if they are relevant to the company. A Double Materiality Assessment helps in determining this relevance.