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On July 30, 2025, the European Commission officially adopted the VSME, a sustainability reporting framework specifically designed for micro and SMEs not subject to the CSRD. Its ambition? To offer these companies a simplified tool to structure their sustainable transition and communicate non-financial information to stakeholders who request it.
Initially conceived as a streamlined and voluntary version of the CSRD, the VSME could quickly gain importance. Ongoing discussions surrounding the European Omnibus hint at an expansion of its scope, thus impacting a much wider number of companies.
What is the VSME standard?
The European Commission tasked EFRAG with developing a voluntary sustainability reporting standard intended for micro and SMEs.
This standard, the VSME, or Voluntary Sustainability reporting standard for SMEs, was published by EFRAG on December 17, 2024, after a period of public consultations that ran from January to May 2024.
The European Commission finally adopted the VSME on July 30, 2025, in the form of a recommendation.
A standard that falls within the framework of the European Green Deal and the CSRD
While the VSME standard is aimed at companies not subject to the CSRD, it is nonetheless part of a broader European project for the standardization of sustainability reporting.
EFRAG has therefore published a set of standards:
- the ESRS standards: 12 in total (2 cross-cutting, 10 thematic), they are aimed at companies subject to the CSRD
- the LSME standard: this concerns listed SMEs, initially subject to the CSRD but whose status could change under the Omnibus Directive
- the standard VSME : intended for SMEs and micro-enterprises, it more generally concerns all companies not subject to the CSRD.
What is the objective of the VSME standard?
The main objective of the VSME standard is to facilitate SMEs' alignment with the sustainability reporting requirements of their business relationships, by providing them with a more accessible, proportionate, and adapted framework for their size and resources.
It should thus enable:
- Provide a simplified reporting framework with indicators tailored for SMEs
- Reduce the administrative burden associated with disclosing non-financial information
- Harmonize the formats of sustainability reports requested by investors and large companies within their value chain
- Facilitate their transition towards more sustainable practices and increase their resilience to social and environmental challenges
Which companies are affected by the VSME?
The VSME was initially intended to apply only to very small enterprises (VSEs), micro-enterprises, and unlisted SMEs, which are excluded from the scope of the CSRD.
According to European criteria, the companies concerned are categorized as follows:
However, the Omnibus Directive proposal currently under discussion in the European Parliament is changing the game and could significantly increase the importance of this reporting standard.
What impact does the European Omnibus have on the VSME?
The proposed law, known as the Omnibus Directive, currently under discussion in the European Parliament, could profoundly transform the landscape of non-financial reporting in Europe. Its main objective is to adjust certain provisions of the CSRD, the CSDDD and the Green Taxonomy taking into account the economic realities of European companies.
If this directive is adopted as is, only companies with more than 1,000 employees, with a turnover of at least 50 million euros or a balance sheet of 25 million euros, would be subject to the CSRD. This would exclude approximately 80% of the companies initially covered by this reporting obligation.
However, these companies will still be subject to requests from their stakeholders (investors, banks, major clients), who wish to continue receiving ESG information. This is where the VSME becomes highly relevant, as it provides a structured and harmonized framework to meet these expectations without imposing an excessive administrative burden. Furthermore, the 13th edition of the Tennaxia study on ESG reporting practices reveals that 83% of companies that would fall outside the scope of the CSRD according to the Omnibus intend to continue publishing a report, mostly in VSME format.
By extending the potential scope of VSME use, the Omnibus could therefore make this standard a market benchmark, particularly for mid-caps and SMEs working with large companies subject to the CSRD. The bill also calls on European legislators to transform this voluntary standard into a delegated act.
Finally, this reform project includes a “value chain cap” to protect small businesses from excessive demands from large groups in their value chain. The objective is to prevent small businesses from being subjected to the same reporting requirements as large companies due to a trickle-down effect, within the framework of the CSRD and CSDDD. Thus, the VSME standard should serve as a reference for defining the information that VSEs and SMEs may be required to provide.
The main principles of the VSME standard
The VSME standard establishes a clear framework for preparing sustainability reports. It is based on certain key principles that we list below, which are intended both to ensure the quality of the information disclosed and to reduce the administrative burden on companies covered by this standard when preparing their sustainability report.
Information Quality
While the VSME does not require adouble materiality analysis, it retains its core principles. Companies must disclose how they have had, or are likely to have, positive or negative impacts on the environment and society in the short, medium, and long term. They must also specify their risks and opportunities, or how these issues influence their financial position, performance, and cash flows.
As with the CSRD, the information disclosed must be relevant, faithful, comparable, understandable, and verifiable. Depending on their activities, companies may include additional indicators or analyses to reflect sustainability issues specific to their sector. This may particularly concern Scope 3 GHG emissions, the disclosure of which is not required under the VSME standard.
Comparability of information
From the second year of reporting, companies will be required to provide comparative information relative to that published the previous year, except, of course, for new indicators introduced in the interim.
The "if applicable" principle
Some indicators only apply to specific situations. The company is only required to report them if they are relevant to its activity. When a company does not provide required information, it is assumed by default that it is not applicable in its context.
Integration of subsidiaries
If a company is part of a group, it is recommended to include the consolidated data of its subsidiaries in its report. In this case, the subsidiaries are exempt from reporting.
Report periodicity and accessibility
Companies will be required to publish their sustainability report annually. If certain data has not changed from one year to the next, the company can simply indicate this and refer to the previous report.
The company can choose to make its report public, by integrating it into its management report if it publishes one, or as a separate document.
Incorporation by Reference
To avoid duplicating information, the company can refer in its sustainability report to other accessible company documents
Protection of sensitive information
If some information transmitted involves classified or sensitive data, the company may choose not to provide it, provided that this omission is noted in a dedicated section of the report.
Consistency with financial statements
When the company publishes a financial report, the information in the sustainability report must be consistent with it and presented in a way that clearly shows the links between the two.
A two-tier structure: basic standard and comprehensive standard
The VSME standard consists of 2 modules: a basic module and a comprehensive module.
As modularity is one of the VSME's principles, companies have a choice between two options when preparing their sustainability report. They can complete only the basic module or choose to complete both modules.
The basic module of the VSME standard
The basic module is primarily intended for very small companies wishing to voluntarily engage in sustainability reporting.
It consists of 11 indicators structured around the ESG pillars: environmental, social, and governance.
EFRAG nevertheless specifies that companies completing only this module but wishing to provide additional information may select certain data requested in the comprehensive module to enrich their report.
General information
B1 - Basis of preparation
The company must specify:
- the chosen option (basic module or basic + comprehensive module)
- whether certain information cannot be disclosed because it is considered confidential or sensitive
- whether the sustainability report concerns the company alone or includes its subsidiaries
- the list of subsidiaries potentially covered by this sustainability report
- certain essential information (legal form, NACE code, turnover, balance sheet, number of employees, geographical location of the various sites, etc.)
B2 - Practices, policies, and future initiatives for the transition to a more sustainable economy
The company must indicate here whether it has implemented any practices, policies, or initiatives aimed at preparing its transition to a sustainable economy. This includes all policies, practices, and actions implemented in social, environmental, or governance matters, whether to reduce negative impacts or enhance positive ones.
It must also specify the objectives it has set to monitor these actions.
Environmental Data
B3 - Energy and Greenhouse Gas Emissions
The company must state its energy consumption, specifying the proportion of electricity and fossil energy, as well as the proportion of this energy derived from renewable sources.
The company will also report its greenhouse gas emission levels for scopes 1 and 2 following the GHG Protocol methodology.
B4 - Air, Water, and Soil Pollution
If it is already subject, by national regulation or a management system (such as ISO 14001 for example), to accounting for or reporting its pollutants to the competent authorities, the company must declare here the types and quantities of pollutants it discharges into the air, water, and soil as part of its activities.
B5 - Biodiversity
The company must indicate here the number and area of the various sites it owns, leases, or manages that are located near areas considered sensitive for biodiversity.
It can also provide information related to its land use: area, impervious surface, area dedicated to nature, etc.
B6 - Water
For this indicator, the company must state the amount of water withdrawn for its operations. For water-intensive processes, the company will publish its water consumption in areas with high water stress (the difference between water withdrawn and water discharged).
B7 - Resource Use, Circular Economy, and Waste Management
Here, the company must specify whether it has implemented certain principles related to the circular economy.
Regarding waste management, it must report its annual waste production specifying the proportion of hazardous waste and non-hazardous waste. It must also provide information on the quantity of waste sent for recycling or reuse.
Finally, if it consumes significant quantities of raw materials as part of its operations, it is required to declare the mass quantity of relevant materials.
Social Indicators
B8 - Workforce - General Characteristics
This involves reporting the number of full-time equivalent employees, contract type, gender, and the country in which they are employed.
If the company has more than 50 employees, it must also report its turnover rate.
B9 - Workforce - Health and Safety
This involves recording the number and rate of workplace accidents within the company, as well as the number of fatalities attributable to workplace accidents and occupational diseases.
B10 - Workforce - Remuneration, Collective Bargaining, and Training
The company must specify here whether employees receive a remuneration equal to or greater than the legal minimum wage in the country where they work, the gender pay gap (this information may be omitted for companies with fewer than 150 employees), the proportion of employees covered by a collective bargaining agreement and finally the average number of training hours per employee, broken down by gender.
Governance Data
B11 - Convictions and fines for corruption and bribery
The company must indicate here the number of convictions and fines received during the analysis period for acts related to corruption and bribery.
The full VSME standard module
Companies wishing to complete this module must first complete the basic module.
This module is particularly aimed at companies that need to provide non-financial information to their stakeholders. It was specifically designed to meet the demands of banks, investors, and large corporations.
The standard also provides, in Annex C, a correlation table with other EU regulations for financial market participants who use information produced using the VSME standard.
The full module consists of 9 indicators, also structured into 3 main parts: Environment, Social, and Governance.
General Information
C1 - Strategy: Business Model and Sustainable Development Initiatives
The company must disclose here the key elements of its business model and strategy, including its main products/services, markets, business relationships, and strategic aspects related to sustainable development.
C2 - Description of practices, policies, and future initiatives for the transition to a more sustainable economy
The company must briefly describe the practices, policies, or initiatives for a sustainable transition that it declared in indicator B2 of the core module. It is also invited to specify the level of internal responsibility concerned for each action undertaken.
Environmental Data
C3 - Elements to consider for GHG emissions reporting under B3 (core module)
As its name suggests, this indicator complements indicator B3 of the VSME's core module. Companies will need to provide information on their GHG emission reduction targets, including Scope 1 and 2, as well as Scope 3 if applicable. They will need to specify the target year, target value, baseline year, and units used. They will also indicate the scopes covered by these targets and the main actions planned to achieve them.
Companies operating in high climate impact sectors must also indicate whether they have adopted a transition plan to mitigate climate change and, if so, explain how it contributes to emission reduction. If no plan is in place, they must indicate if and when they intend to adopt one.
C4 - Climate Risks
This indicator is the closest to the CSRD's double materiality analysis, even if it is largely simplified in the applied methodology and expected results.
If any have been identified, the company must describe climate risks and those related to its environmental transition, as well as their potential impact on its assets, operations, and value chain. It must specify the time horizon of climate-related risks and the transitional adaptation measures it has implemented. It may also assess the negative effects of identified risks on its financial performance and classify them as high, medium, or low.
Social Indicators
C5 - Other (General) Workforce Characteristics
If the company employs more than 50 employees, it must provide the female/male ratio at management level and indicate the number of self-employed workers who work exclusively for it and temporary workers provided by companies primarily engaged in "employment activities" (temporary agency workers).
C6 - Additional Workforce Information - Human Rights Policies and Procedures
The company must indicate whether it has a code of conduct or a human rights policy for its personnel. If so, it should specify whether this policy covers the following issues: child labor, forced labor, human trafficking, discrimination, accident prevention, or others.
It must also indicate whether a complaint handling mechanism is in place within the organization.
C7 - Serious Negative Human Rights Incidents
The company must indicate whether it has recorded during the reporting period any incidents related to child labor, forced labor, human trafficking, or discrimination within its workforce. If incidents have been identified, it must describe the measures taken to address them.
It is also required to indicate whether it is aware of incidents involving workers in its value chain, communities affected by its activities, consumers, or end-users, and if so, to provide details on these incidents.
Governance Data
C8 - Revenues from Certain Sectors and Exclusion from EU Benchmarks
If the company operates in the controversial weapons, tobacco, fossil fuels, or chemicals (pesticides and other agrochemicals) sectors, it must report revenues related to these activities.
It must also indicate whether it is excluded, due to its activities, from the “Paris Agreement” benchmarks of the European Union.
C9 - Diversity Ratio in the Governance Body
If the company has a governance body, it must indicate the women/men diversity ratio of that body.
Why Companies Should Adopt the VSME Standard
Although it remains voluntary, the VSME standard represents a strategic opportunity for European companies not subject to the CSRD.
Anticipate Market Expectations
Investors, banks, and large companies are increasingly demanding transparency on ESG criteria. Adopting the VSME allows SMEs and mid-caps to structure their non-financial reporting and comply with the expectations of their business partners.
Facilitate Access to Funding
Financial institutions are progressively integrating ESG criteria into their credit and investment decisions. A company that follows the VSME will be able to more easily justify its commitment to sustainability and access more favorable financing.
Prepare for Potential Future Obligation
Even though the VSME is currently voluntary, regulations are evolving rapidly. Familiarizing themselves with these standards now allows companies to get ahead and avoid abrupt adaptation if these norms become mandatory in the future.
Optimize Risk Management and Improve Resilience
Non-financial reporting is not merely an administrative burden. It allows companies to identify their vulnerabilities, anticipate climate, social, and governance risks, and thus adopt resilient, more robust, and sustainable strategies.
Achieving Commercial Differentiation
A clear and structured commitment to sustainable development is a competitive advantage. It can strengthen brand image, attract new talent, and help a company stand out to clients or in tenders.
Conclusion
The VSME standard is part of a framework designed to simplify and harmonize sustainability reporting for VSEs, SMEs, and micro-enterprises. With the changes introduced by the European Omnibus, it could even quickly become an essential standard for European mid-caps.
Adopting VSME today means anticipating market expectations, strengthening competitiveness, and positioning oneself as a key player committed to the sustainable transition.
Want to learn more?
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Sources:
- “Voluntary reporting standard for SMEs (VSME)”, EFRAG Page
- “VSME: Understanding Voluntary Standards for SMEs”, CSR Portal (French government), 28/02/2025
- “EFRAG Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME)”, EFRAG, 17/12/2024
- “Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks”, European Commission, 17/07/2020