VSME: a new framework for sustainability in European SMEs

With the progressive rollout of the CSRD and ESRS, sustainability reporting has become mandatory for all large European companies. But what about SMEs, which are often asked to provide ESG data to clients or financial partners, without themselves being directly subject to the directive?

To bridge this gap, EFRAG and the European Commission published the VSME (Voluntary Sustainability Reporting Standard for non-listed Micro-, Small-, and Medium-sized Enterprises) in December 2024: a voluntary standard designed to harmonize and simplify extra-financial communication for SMEs, while safeguarding their competitiveness. While the framework brings several advantages, it is not without controversy—this article explores both sides.

What is the VSME?

The VSME is a voluntary, harmonized framework intended for non-listed SMEs in Europe. It aims to provide them with a simple, proportionate, and widely recognized way to communicate their sustainability commitments and performance, without facing the complexity of the ESRS imposed on larger companies under the CSRD.

In practice, the VSME acts as a common language between SMEs and their stakeholders, streamlining ESG data exchanges across the value chain.

What are its objectives?

The initiative provides SMEs with a pragmatic framework to address the growing importance of sustainability. Under pressure from clients, investors, banks, and public procurement, SMEs need to demonstrate their ESG commitments without being overwhelmed by administrative burdens.

Concretely, the VSME seeks to:

• Reduce the administrative burden: by replacing multiple, often inconsistent ESG questionnaires with a harmonized set of indicators.
• Facilitate access to sustainable finance: by equipping SMEs with transparency tools that strengthen their credibility with financial stakeholders and help them showcase their environmental and social initiatives.
• Support integration into public procurement and responsible supply chains: by meeting the rising demand from buyers for tangible ESG evidence in partner selection.
• Prepare for the future: by familiarizing SMEs with regulatory expectations in sustainability reporting, anticipating the likelihood of more stringent requirements ahead.

A two-tier standard

To avoid placing excessive strain on companies willing to engage, the VSME was designed with two reporting modules, allowing for a gradual approach depending on maturity levels:

• The “basic” module
  Covers a limited yet essential set of indicators (greenhouse gas emissions, energy consumption, anti-corruption practices, key social data, etc.).
  Objective: enable any SME, even those less experienced with ESG, to provide a credible minimum set of information.
• The “comprehensive” module
  Provides a broader and more narrative-based approach.
  Objective: allow companies to meet more advanced ESG expectations, for example from institutional investors or large corporations subject to the CSRD.

This modularity makes the framework flexible and better suited to the diversity of European SMEs.

VSME: What are the benefits for SMEs?

The VSME was designed as a practical response to SMEs’ need for clarity and proportionality in sustainability reporting. It allows them to move forward step by step, reaping the benefits without being crushed by the requirements imposed on larger companies:

• Standardization: a single, EU-recognized format that replaces the jungle of multiple and sometimes contradictory requests from clients, investors, or financial institutions.
• Flexibility: the ability to tailor reporting levels to the company’s resources, maturity, and priorities, enabling SMEs to progress at their own pace.
• Credibility: developed by EFRAG and validated by the European Commission, the standard carries strong institutional legitimacy and recognition across the business ecosystem.
• Future readiness: a first step toward more advanced sustainability practices, helping SMEs anticipate future obligations without immediate regulatory pressure.

A framework under scrutiny

While the VSME’s main purpose is to simplify SME reporting, it has also raised concerns. Several stakeholders—experts, investors, and business representatives—point to unresolved issues that could limit its effectiveness:

• Divergence with the ESRS: large companies must publish more stringent data, especially on Scope 2 emissions. The VSME currently only requires the location-based method, making the market-based method (linked to Guarantees of Origin) optional. This gap could complicate data alignment between SMEs and larger corporations.
• Risk of two-speed reporting: SMEs sticking to the basic module may provide information seen as too limited by certain investors, weakening the standard’s added value as a bridge to sustainable finance.
• The real burden for SMEs: even simplified, reporting requires time, expertise, and sometimes digital tools—resources that smaller firms may lack, especially given their already heavy administrative workload.

Key takeaways

By offering a voluntary, simple, and recognized framework, the VSME addresses a real need for clarity and proportionality in an environment where ESG requests are multiplying.

Its main strengths make it a promising tool to enhance SME competitiveness across the value chain. However, challenges remain: the risk of a two-tier system, divergences with large-company standards, and the practical burden for smaller firms.

The effectiveness of the VSME will therefore hinge on two commitments:

• From SMEs, to gradually adopt and leverage the framework.
• From large companies and investors, to acknowledge the standard’s legitimacy and refrain from demanding more than it requires.

Ultimately, the VSME could become a genuine bridge between SMEs and the sustainable finance ecosystem—provided the balance between simplicity and credibility is preserved. More than a technical standard, it represents a strategic lever to help SMEs prepare for tomorrow’s requirements while staying competitive today.

Want to know how the VSME can fit into your business practices? Nvalue’s team will guide you step by step in setting up your sustainability reporting.