EU Adopts Sustainability Reporting Standard to Support Small Companies

Key Impact Points:

• Simplifies ESG reporting: New VSME standard offers SMEs a streamlined way to respond to sustainability data requests.
• Protects smaller firms: Acts as a “value-chain cap” to limit excessive ESG data demands from large companies and banks.
• Improves finance access: Aims to help SMEs secure funding by meeting investor and lender ESG requirements.

European Commission Adopts Voluntary Standard for SMEs

The European Commission has adopted the Voluntary Sustainability Reporting Standard for SMEs (VSME), designed to make it easier for smaller businesses to report ESG data and respond to requests from financial institutions and large companies.

Developed by the European Financial Reporting Advisory Group (EFRAG), the VSME targets companies not covered by the EU’s Corporate Sustainability Reporting Directive (CSRD) but still facing growing demands for sustainability-related information.

The Commission encourages large companies and financial institutions seeking SME ESG data to base their requests on the VSME “as far as possible.”

Streamlined, Two-Tier Structure

The VSME has two reporting levels:

• Basic Module – 11 key disclosures, such as Scope 1 & 2 emissions and anti-corruption measures, most often requested by value-chain partners.
• Comprehensive Module – 9 additional disclosures often sought by banks and investors, including GHG reduction targets, transition plans, and ESG practice descriptions.

The aim: give SMEs flexibility while ensuring they meet the most common ESG data demands without facing disproportionate reporting burdens.

Linked to Omnibus I Proposal

The Commission’s February 2025 Omnibus I simplification package proposed limiting mandatory CSRD reporting to companies with over 1,000 employees—removing about 80% of companies from mandatory requirements.

For smaller firms, the VSME would become the default voluntary reporting framework and also set a ceiling for the level of ESG detail large companies and banks can request from SMEs.

Interim Step Toward a Delegated Act

Today’s recommendation is an intermediary measure until a delegated act formally adopts the voluntary standard. The final version may differ depending on negotiations over CSRD scope and updates to the European Sustainability Reporting Standards (ESRS), which could cut required data points by nearly two-thirds.

Related Article: Rethinking Materiality: A New Framework for Climate and Sustainability Reporting