The new voluntary sustainability reporting standard (VSME, Voluntary reporting standard for SMEs) is intended for companies that are not subject to the EU’s Corporate Sustainability Reporting Directive (CSRD).
The standard is specifically designed for small and medium-sized enterprises (SMEs), and it aims to clarify and structure the sustainability reporting of businesses in the SME sector. SMEs can choose to use the new VSME standard when reporting on environmental, social, and governance (ESG) matters. In other words, the standard helps companies report on how they are working to reduce the negative impacts of their business and increase positive impacts on people and the environment in support of a more sustainable economy.
The underlying idea is that the VSME standard is significantly lighter and simpler than the CSRD’s ESRS standards, making it feasible for SMEs with more limited resources than large corporations to follow the reporting guidelines. The standard includes detailed instructions to support companies that are less experienced in sustainability reporting, particularly related to environmental indicators.
EFRAG (European Financial Reporting Advisory Group) developed the standard at the request of the European Commission.
Key Points about the VSME Standard
Below is a summary of the essential features of the VSME standard:
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Voluntary: As the name suggests, the VSME standard is not mandatory, but it is available for SMEs that decide to report on their sustainability goals and actions. The standard provides a framework that allows companies to demonstrate their commitment to sustainability without being subject to the more complex requirements imposed on larger companies.
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Simplified: The goal of the VSME standard is to reduce complexity for SMEs by offering a more manageable approach to sustainability reporting.
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If Applicable Principle: Information is reported only on topics and to the extent the company considers applicable to its business model and industry.
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Inclusion of Comparative Data: Starting from the second reporting year, companies must include comparative data from the previous year.
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Publishing the Sustainability Report: Depending on stakeholders’ information needs, a company may publish its sustainability information after the end of the fiscal year either as part of the board’s management report or as a separate sustainability report.
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Clarifies ESG Reporting in Value Chains: The VSME standard sets clear reporting boundaries for SMEs within the value chains of larger companies. Larger companies can use the VSME standard to specify what information they request from smaller subcontractors. This supports SMEs in meeting larger companies’ ESG data expectations and ensures more consistent reporting across the value chain.
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Promotes Transparency and ESG Commitment: The VSME standard helps SMEs demonstrate their commitment to sustainability and ESG principles, which are increasingly important to investors, customers, and other stakeholders. It serves as a reporting framework especially for those SMEs that have not previously published a sustainability report or communicated about ESG development and outcomes.
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Compatibility with EU Goals: Although voluntary, adopting the VSME standard supports the EU’s broader sustainability goals, which aim to enhance transparency and sustainability across all sectors. The VSME standard is also designed to help SMEs align with the EU Green Deal and climate objectives.
Structure of the VSME Standard
The voluntary VSME standard consists of two parts: a basic module and a comprehensive module.
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Basic Module: This outlines the minimum reporting requirements. It includes general information about the company and its sustainability practices, as well as key indicators on energy use, greenhouse gas emissions from the company’s own operations, workforce, and governance.
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Comprehensive Module: This includes more extensive key indicators on sustainability, such as climate change adaptation, GHG reduction, workforce, and governance. Banks, investors, and business customers are likely to be interested in ESG data from both the basic and comprehensive modules, including goals, actions, and metrics.
The idea is that the reporting company selects whether to follow only the basic module or also the comprehensive module. The company must then report on all the relevant sections of the chosen modules, applying the if applicable principle—meaning if a specific metric is not relevant to the business, it can be omitted. The basic module is tailored to meet the reporting needs of micro-enterprises. If a company chooses the comprehensive module, it must also fully report according to the basic module.
Additionally, the standard recommends including more comprehensive sustainability data and indicators in the sustainability report—especially those typical for the industry or which the company has identified as material ESG topics and metrics.
What Does the VSME Standard Require Companies to Report?
The VSME reporting standard focuses on general and key ESG (environmental, social, and governance) factors.
According to the VSME standard (basic and comprehensive modules), the key reporting areas required from SMEs are:
Environmental Data
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Greenhouse gas emissions from the company’s own operations and value chain (Scope 1, 2, and 3 emissions)
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GHG reduction targets and transition plans
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Energy use
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Efforts to reduce waste, recycling practices, and other waste management methods
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Operations near environmentally sensitive or biodiversity-rich areas
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Information on how the company manages water resources, including water use and conservation practices
Social Data
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Actions related to employee health, safety, and diversity
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Description of labor practices, including gender pay gaps, working conditions, and respect for human rights
Governance-Related Data
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Governance of sustainability and related policies, including reporting on sustainability goals and progress
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The structure of the Board of Directors
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Policies on preventing corruption, bribery, and promoting ethical conduct
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Actions to maintain transparency in operations and decision-making
Why Adopt the VSME Standard?
Although the implementation of the CSRD directive has been postponed by two years for companies in the so-called second and third waves, and the criteria for companies falling under the directive are expected to be clarified, the importance of sustainability in business development and growth has not diminished.
The demand for ESG data from external stakeholders (including customers and investors) and large companies in the value chain has also not decreased. On the contrary, ESG data requests are expected to increase as second- and third-wave companies begin reporting under the CSRD. While sustainability reporting remains voluntary for companies not subject to the CSRD directive, the reporting requirements for large companies effectively compel SMEs involved in their value chains to report on their sustainability actions and progress to their clients.
Based on market feedback, the VSME standard is expected to help harmonize the currently numerous ESG data requests from various stakeholders, which generate significant preparation costs for unlisted SMEs. Transparent and reliable sustainability reporting is also expected to support SMEs in obtaining green financing and enhancing their sales efforts.
The goal of sustainability reporting under the VSME standard is to demonstrate the reporting company’s commitment to sustainable development. For this reason, it is advisable to include the company’s full set of sustainability goals and progress toward them in the report. Where appropriate, companies should report more broadly on the focus areas and progress of their sustainability work beyond just the indicators listed in the VSME standard’s basic and comprehensive modules. The standard provides a diverse list (Appendix B of the standard) of potential material sustainability topics that the reporting company may include in its sustainability report.
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With the help of Tofuture’s experts, you can adopt the new voluntary VSME standard as the foundation for your sustainability reporting. In addition, Tofuture’s ESG system enables the collection of VSME-compliant data from across your organization. The system calculates Scope 1, 2, and 3 emissions and consolidates company-level data. It ensures better data management and improves data reliability.
Contact us to plan together how we can effectively develop your company’s sustainability management, measurement, and reporting in line with the VSME standard.
