VSME explained: The voluntary sustainability standard

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 Following the Final EU Omnibus I Decision

The EU Sustainability Omnibus I, which was formally adopted by the European Commission in February 2026, has fundamentally changed the landscape of European sustainability reporting. The proposal aims to reduce the administrative burden on companies and strengthen their competitiveness.

As part of the CSRD, the Omnibus proposal introduces key thresholds and adjustments:

• Applies to EU companies with more than 1,000 employees and more than €450 million in revenue (Wave 1 is already subject to reporting requirements, while Wave 2 applies from fiscal year 2027).
• Non-EU companies will be subject to reporting requirements from fiscal year 2028 if they generate more than €450 million in revenue in the EU and have an EU subsidiary or branch generating more than €200 million in revenue.
• Companies outside the scope of the CSRD will be able to report voluntarily under the VSME Standard in the future.
• Member States may exempt Wave 1 companies below the thresholds for 2025 and 2026. The current draft CSRD legislation in Germany provides for this. However, the NFRD, the predecessor to the CSRD, still applies in Germany at present.
• Climate Transition Plans remain part of the CSRD.

The VSME Standard plays an important role in this context. It provides smaller companies with a structured and resource-efficient way to provide the required sustainability information without having to meet the comprehensive ESRS requirements. The VSME acts as a safeguard, known as a “value chain cap.” This means that the VSME, and in the future the new voluntary standard based on the VSME, sets the maximum requirements that CSRD-reporting companies may request from non-CSRD-reporting suppliers. It therefore establishes an upper limit for the sustainability information that larger companies may request from companies in their value chain.

For smaller companies, this means that a sustainability report based on the VSME can serve as a safeguard against requests for additional information from larger business partners, with the exception of information that is customary within a specific industry. Compliance with the value chain cap is to be monitored by the EU Member States themselves.

The new voluntary standard (VS): successor to the VSME starting 2027

On 6 May 2026, the EU Commission published a draft for a new voluntary standard (VS), which builds on the existing VSME and is expected to replace it starting with financial year 2027. The VS is aimed at companies with up to 1,000 employees that fall outside the scope of the CSRD, responding to the CSRD threshold increase to 1,000 employees brought about by Omnibus I. In some areas (e.g. biodiversity), the VS draft even contains fewer data points than the VSME. The final version was published by the EU Commission in early July 2026; the European Parliament and Council now have two months to raise a possible veto. Final publication in the EU Official Journal is expected in September 2026.

Structure of the VSME: Basic vs. Comprehensive Module

Like the VSME, the VS (Voluntary Standard) consists of two modules: the Basic Module and the Comprehensive Module. The module structure remains unchanged from the original VSME, though the number of data points has been slightly reduced to ensure alignment with the revised ESRS (this mainly affects biodiversity-related metrics). Companies that report voluntarily under the VS are not required to obtain external assurance.

Basic Module

As the name suggests, the Basic Module offers an entry-level tier of sustainability reporting for companies with fewer than 1,000 employees. It uses simplified language and, with 11 disclosure requirements (B1–B11), including narrative disclosures and metrics, covers significantly less content than the ESRS under the CSRD. The disclosure requirements are assigned to the ESG topic areas (environmental, social, and governance). Companies that want to report under the VS should answer all disclosure requirements in the Basic Module. Since the VS does not require a double materiality assessment, the "applicability" principle applies: some data points only need to be completed if the associated condition applies to the company ("if..."). For micro-enterprises with ≤10 employees, certain more demanding environmental data points are voluntary even where they are mandatory for other companies. This group therefore benefits from additional protection under the value chain cap.

Comprehensive Module

The Comprehensive Module builds on the Basic Module, whose application is a prerequisite. It contains nine additional disclosure requirements (C1–C9) and uses sustainability-related financial data points as proxies. These proxies serve as simplified indicators to make the company's ESG performance measurable and to facilitate access to sustainable financing. The disclosure requirements in the Comprehensive Module only need to be considered if they are relevant to the company. A double materiality assessment can help with this assessment, though it is not a prerequisite.

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Core principles of the VSME

The VS(ME) is based on core principles for its preparation that are comparable to those in the ESRS.

Double materiality

Even though the VS does not require a double materiality assessment (DMA), it aims to give companies the option to report both (1) on their positive and negative impacts on people and the environment, including additional information not covered by the VS, and (2) on how environmental and social matters affect their financial position. In other words, both perspectives of materiality should be considered. A DMA can be particularly helpful in the Comprehensive Module to justify why a topic is not reported on in greater depth.

Including additional information not covered by the VS(ME)

Companies may also report metrics that are not included in the VS standard. This makes sense when the information is important for the company or its industry. For example, they can add extra descriptions or figures, such as on workers in the value chain. This ensures that no important sustainability aspect is left out, even if it isn't explicitly named in the standard.

Comparative information

Companies should be able to compare their data with the previous year's figures. That's why they must provide the prior year's values for all metrics. The only exception is new metrics being reported for the first time. This comparative data becomes mandatory from the second year of reporting under the VS onward.

The "if applicable" principle

The "if applicable" principle makes reporting more flexible for companies. Simply put, it means a company only needs to disclose certain information if the associated condition applies to it. Specifically:

• Each disclosure has clear rules for when it must be completed.
• If a disclosure isn't relevant to a company, it can be omitted.
• Where a disclosure is omitted, it is assumed that the underlying condition does not apply to the company.

Examples of the principle:

• B4 – Pollution: "If the company is already required, under laws or other national regulations, to report its pollutant emissions to the relevant authorities…"
• B6 – Water: "If the company has production processes that consume significant amounts of water…"
• C5 – Social metrics: "If the company employs 50 or more workers…"

This practical approach lets every company focus on the information that's genuinely relevant to its specific situation. A DMA can help here to justify why something doesn't apply.

Including subsidiaries

Clear rules apply to the inclusion of subsidiaries: the parent company is entitled to prepare a consolidated sustainability report for the entire group. This comprehensive report incorporates all relevant sustainability information from the subsidiaries. If the parent company already produces this consolidated report, the subsidiaries no longer need to report separately. This approach streamlines the reporting process and avoids redundant disclosures. Alternatively, a standalone report can be prepared for each subsidiary, though this is not recommended. Ideally, the same scope of consolidation should be used as for the financial management report.

Timing and location of the sustainability report

The following timing and organizational rules apply to the sustainability report:

• The report must be prepared every year if large companies or banks require it.
• The reporting period should match that of the financial year-end statements.
• If data hasn't changed compared to the previous year, a simple statement to that effect is sufficient.

Companies have two options for publication:

• As part of the (financial) management report
• As a separate document

To avoid duplicate work, companies can reference information already published in other documents.

Classified and sensitive information

If the standard requires the disclosure of classified or sensitive information, the company may omit it. If the company chooses to omit this information, this must be stated under disclosure requirement B1 in the Basic Module.

Consistency and linkage with the financial report

The information in the sustainability report must be consistent with that in the company's financial report and presented in a way that makes the connections between the two areas understandable. This can be achieved, for example, through appropriate cross-references.