In an increasingly sustainability-oriented business landscape, the ability to demonstrate commitment to environmental, social and governance (ESG) principles is becoming essential, even for small and medium-sized enterprises (SMEs). The Voluntary Sustainability Reporting Standards for SMEs (VSME) provide a structured framework to enable SMEs in the EU to report ESG data consistently and effectively.
Developed by the European Financial Reporting Advisory Group (EFRAG), the VSME aim to fill the gap for companies outside the scope of the mandatory requirements of the Corporate Sustainability Reporting Directive (CSRD). This guide introduces the VSME, explaining its purpose, target audience, modules and how SMEs can use it to gain regulatory and competitive advantage.

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What is ESG reporting?
ESG reporting is the process of communicating a company's performance and impact in three key areas: Environmental, Social and Governance. It includes metrics on environmental factors such as energy use, carbon emissions and resource management; social aspects such as employee well-being, diversity and community engagement; and governance practices such as transparency, ethics and board diversity. ESG reporting helps companies show stakeholders - such as investors, customers and regulators - how they manage sustainability and long-term risk.
As pressure for greater transparency increases, ESG reporting is becoming essential not only for regulatory compliance, but also for building trust, enhancing reputation, and identifying opportunities for growth and innovation. It's a way for companies to demonstrate their commitment to sustainable and responsible business practices, while contributing to broader environmental and social goals.
What are the VSME?
The VSME, short for Voluntary reporting standards for SMEs (small and medium-sized enterprises), are ESG reporting standards for companies in the EU that fall outside the scope of the European Corporate Sustainability Reporting Directive (CSRD). The final version has just been published in December 2024. It is intended to be a simple reporting tool by the European Financial Reporting Advisory Group (EFRAG) and aims to standardize ESG data requirements.
Who are the VSME for?
The VSME is aimed at small and medium-sized enterprises that are not required to comply with the CSRD. While companies that fall within the scope of the CSRD must report using the European Sustainability Reporting Standards (ESRS), small and medium-sized enterprises may choose to report on a voluntary basis. This may be due to pressure from customers, to gain advantage with investors, or for a variety of other reasons.
To provide a standard that is consistent with the ESRS, EFRAG has published ESG reporting standards for voluntary reporting by SMEs to improve their access to lenders, investors and customers.
Two different modules
The VSME consist of two different modules that SMEs can use to guide their ESG reporting. The Basic Module is aimed at micro-enterprises and sets minimum reporting requirements.
The Comprehensive Module is based on expected data requests for SMEs from lenders, investors and customers and includes more data points and disclosures. It includes all the metrics of the Basic Module and requires some additional disclosures.

Criteria in the Basic Module
Basic information
Before starting to report on sustainability performance, the VSME requires companies to collect basic information about the company.
In the basic module B1, this includes information on the company structure, including subsidiaries, legal form, NACE sector classification code, number of employees, financial data (balance sheet size and turnover) and geolocation (primary operations, significant assets and sites).
You should also disclose any ESG certificates or labels as part of the company information.
Company information is also the place to report on current practices, targets, policies and future initiatives for a more sustainable economy (B2).
B1 Basis for preparation
B2 Practices, policies and future initiatives for transitioning towards a more sustainable economy

Environmental Metrics
For the basic module, you need to report some environmental metrics in the categories energy and greenhouse gas emissions (B3), pollution of air, water and soil (B4), biodiversity (B5), water (B6) and resource use, circular economy and waste management (B7).
For energy and greenhouse gas emissions, the standards ask you to break down your total energy consumption into renewable and non-renewable electricity and fuels. In addition, the standards ask for Scope 1 and Scope 2 emissions according to the Greenhouse Gas Protocol and GHG intensity. Your company only needs to report on air, water, and land pollution if it is already required to report pollutant emissions to government agencies or if it reports voluntarily.
Biodiversity reporting focuses on land use and biodiversity sensitive areas. Your company must report the number and area of all sites in or near biodiversity sensitive areas that it owns, leases or manages. In addition, with respect to land use, your company can report on the total area used, the sealed area, and the so-called nature-oriented area, both on and off-site.
Under Water, companies should disclose their total water withdrawals, with separate reporting of water withdrawals for sites located in areas of high water stress. In addition, water use (the difference between water withdrawal and water discharge) should be reported if applicable to your company.
In the final environmental topic of the Basic Module, Resource Use, Circular Economy and Waste Management, your company discloses its application of circular economy principles. In addition, your company reports the total amount of waste generated by type and the amount of waste recycled or reused. For companies with high material use (e.g. manufacturing, construction or packaging), mass flows of relevant materials should also be disclosed.
B3 Energy and greenhouse gas emissions
B4 Pollution of air, water and soil
B5 Biodiversity
B6 Water
B7 Resource use, circular economy and waste management

Social Metrics
The social metrics of the basic module are related to the own workforce. This includes general characteristics (B8), health and safety (B9) and remuneration, collective bargaining and training (B10).
General characteristics include the number of full-time equivalent employees by type of employment contract, gender, and country (if your company has employees in more than one country). If your company has 50 or more employees, you also report the employee turnover rate.
Under Health and Safety, your company reports the number and rate of work-related accidents and fatalities resulting from work-related injuries or illnesses.
Finally, your company provides information on remuneration, collective bargaining and training. This includes whether employees are paid above, equal to or below the applicable minimum wage in the country in which you report, and the percentage of employees covered by collective bargaining agreements. In addition, if your company has 150 or more employees, you report on the pay gap between male and female employees. You also include training in your report by reporting the average number of annual training hours per employee by gender.
B8 Workforce - General characteristics
B9 Workforce - Health and safety
B10 Workforce - Remuneration, collective bargaining and training

Governance Metrics
For the governance metrics, your company is only required to report if it was convicted and fined for violating anti-corruption and anti-bribery laws during the reporting period. In this case, you must disclose the number of convictions and the total amount of fines.
B11 Convictions and fines for corruption and bribery
Criteria in the Comprehensive Module
The comprehensive module is an addition to the basic module. This means all the disclosures from the basic module are also part of the comprehensive module. The additional data is based on expected requests from lenders, investors and corporate clients.
General Information
The comprehensive module requires your company to disclose some more details about your business, including information about the business model (C1). This includes key elements of the business model and strategy, such as significant products and services offered, major markets, which may include location but also type of market.
In addition, key business relationships with suppliers, distribution channels and consumers should be covered. If there are links between the strategy and sustainability, these elements should also be described.
With respect to policies and initiatives to improve sustainability, you can report on the most senior level responsible for implementing them in C2.
C1 Strategy: Business model and sustainability - related initiatives
C2 Description of practices, policies and future initiatives for transitioning towards a more sustainable economy

Environmental Metrics
In the comprehensive module, VSMEs propose reporting Scope 3 GHG emissions to provide information on a company's value chain. Scope 3 emissions should be reported according to the GHG Protocol. In addition, if the company has set GHG reduction targets and climate actions, report these under C3. This includes the target year and value, as well as a base year and value, current Scope 1, 2 and 3 emissions, and actions to achieve the targets.
If your company operates in a sector with a high climate impact, information on a transition plan for climate change mitigation should also be included.
The next section is on climate risks (C4), which only applies if the company has identified any climate-related hazards or transition events that create risks. If so, you need to describe these hazards and transition events, disclose your assessment of them, the expected time horizon, and whether you have taken climate change adaptation measures to address the risks.
You may also include the impact on financial performance or business operations resulting from climate risks in the short, medium or long term, including an assessment of whether the risks are high, medium or low.
C3 GHG reduction targets and climate transition
C4 Climate risks

Social Metrics
In terms of general workforce characteristics, there are two new disclosures if the company has more than 50 employees (C5): the ratio of women to men at management level, the number of self-employed contractors working exclusively for your company, and the number of temporary workers.
The other social indicators in the comprehensive module relate to human rights policies, processes (C6) and incidents (C7). You must report whether the company has a human rights policy for its own employees and whether it covers child labour, forced labour, human trafficking, discrimination, accident prevention and any other issues your company has included in its policy. You will also need to disclose if there is a grievance mechanism in place for your own employees.
In terms of human rights incidents, you will need to disclose whether there have been any incidents of child labour, forced labour, human trafficking, discrimination, accident prevention, and any other issues, in your own workforce, and describe the actions taken to address these incidents. Beyond your own workforce, you must disclose human rights abuses involving workers in your value chain, affected communities, consumers and end users.
C5 Additional (general) workforce characteristics
C6 Additional own workforce information - Human rights policies and processes
C7 Severe negative human rights incidents

Governance Metrics
In C8 of the governance metrics, companies only need to report if they are involved in controversial weapons, tobacco, fossil fuels or chemical production. In this case, the company must disclose the relevant revenues. In addition, it should report if it is excluded from the EU reference benchmarks aligned with the Paris Agreement.
Finally, in C9, the company reports on gender diversity in the board of directors, if applicable.
C8 Revenues from certain sectors and exclusion from EU reference benchmarks
C9 Gender diversity ration in the governance body
How can you use the VSME?
The common goal of the VSME is to standardise data requirements to give SMEs better access to lenders, investors or customers. But what does this mean for your business and how can you use the VSME to your advantage?

Improve access to financing
Many banks, investors and other financial institutions take ESG reporting and related risks into account when financing companies.
EU regulations such as the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) require large financial institutions and financial market players to be more transparent about their sustainable investment decisions and ESG practices. Therefore, being able to disclose ESG data and policies and communicate climate-related risks can give your company an edge when seeking funding.

Meet data requirements from customers
Financial market players are not the only ones required to report on their ESG practices. From this year, large companies in all sectors will be required to produce an ESG report under the CSRD. This is expected to lead to data requests from suppliers to these companies.
As the VSME have been drafted at the request of the European Commission to be consistent with the data requests expected from larger companies as a result of the CSRD, compliance with these standards gives SMEs the assurance that they are prepared for these requests.

Recognize risks and set targets
The benefits of the VSME go beyond external communication. If your company is thorough in its reporting, the report provides a good basis for understanding your current impacts and risks. This will help you set targets, continuously improve your impacts and mitigate your risks.
We see reporting not just as a necessary task, but as an opportunity to start improving sustainability in your operations and supply chain.

Get started early & be ready for the future
In the coming years, more and more companies will have to comply with the CSRD, which means that more and more suppliers will be subject to data requests on their ESG practices. By starting to report now, you have the opportunity to gain a competitive advantage over other suppliers in the years to come.
Having a good picture of your company's ESG also prepares you for possible new regulations by enabling you to understand your impacts and risks and which issues are relevant to your company's operations.
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