VSME: The “Light” Sustainability Revolution for SMEs

On 30 July 2025, the European Commission published a Recommendation promoting the adoption of the VSME – Voluntary Sustainability Reporting Standard for non-listed SMEs – designed to support micro, small and medium-sized non-listed enterprises in reporting on ESG matters.
Although the CSRD (Directive 2464/2022 of the European Parliament and Council on corporate sustainability reporting) does not directly apply to non-listed SMEs, these companies represent a fundamental pillar of the European economy. This created the need for a tailored tool that enables such businesses to communicate their sustainability performance in a proportionate and credible manner.

The VSME was developed precisely for this purpose by EFRAG – the European Financial Reporting Advisory Group – to provide a framework aligned with corporate sustainability principles, yet far lighter than the mandatory CSRD standards. Looking ahead, the Commission intends to develop a future voluntary standard for all undertakings excluded from the scope of “CSRD 2.0”, which is expected to build directly on the VSME structure.

By adopting the VSME, SMEs that are not required to apply the European sustainability reporting standards can:

• communicate ESG information in a simple and standardised way;

• improve access to sustainable finance;

• facilitate their transition towards more sustainable business models;

• strengthen dialogue with banks and corporate clients;

• monitor their environmental and social performance;

• enhance competitiveness and resilience over the medium to long term.

Paragraph 2 of the standard clarifies that it is entirely voluntary and targeted at micro, small and medium-sized enterprises not listed on EU regulated markets. It applies to companies as defined in Directive 2013/34/EU, as amended by Delegated Act 2023/2775, which classifies undertakings based on balance sheet total, net turnover and average number of employees:

1. Micro-enterprises: do not exceed two of the following: €450,000 in assets, €900,000 in revenues, or an average of 10 employees;

2. Small enterprises: do not exceed two of the following: €5 million in assets, €10 million in revenues, or an average of 50 employees;

3. Medium-sized enterprises: do not exceed two of the following: €25 million in assets, €50 million in revenues, or an average of 250 employees.

As originally conceived, the CSRD envisaged that sustainability reporting obligations would directly or indirectly involve SMEs. ESG requests from larger clients therefore risked falling entirely on SMEs, fuelling the so-called trickle-down effect.

To mitigate this risk, the “Omnibus” legislative proposal reintroduced the concept of the value chain cap, already included in the CSRD.
This mechanism sets a clear limitation: large companies may not request SMEs to disclose information beyond what is required under the ESRS for listed SMEs (LSME). This principle — set out in Article 29b, par. 4 — acts as a legal safeguard to prevent excessive downward transfer of ESG obligations along the value chain. It remains to be clarified at EU level how this limit will be applied in practice and what the operational boundaries of the so-called legal cap will be.
It is important to note, however, that the current VSME does not yet constitute the definitive cap envisaged by legislators. Rather, it provides the technical foundation upon which the final standard will be built, with the aim of striking a balance between market needs and SMEs’ operational capacity.

Structure of the VSME

The VSME consists of two modules, which companies may combine according to their needs:

• Basic Module: 11 essential disclosures, primarily intended for micro-enterprises; it becomes mandatory once the standard is adopted.

• Comprehensive Module: 9 optional additional disclosures, useful for responding to requests from banks, investors and CSRD-regulated clients.

Although simplified compared to the 12 full ESRS standards, the disclosures are based on the same principles: relevance, faithful representation, comparability, clarity and verifiability.
Companies must therefore describe how they currently or potentially impact people and the environment, and how ESG matters affect their economic and financial situation in the short, medium and long term.

A key innovation introduced by the VSME is the “If applicable” principle, which replaces the full double-materiality approach: certain disclosures must be provided only when relevant to specific circumstances, such as the adoption of management systems or sector-specific regulatory requirements. The standard offers clear instructions for each case, thereby reducing informational complexity.

The VSME is also aligned with the full ESRS in terms of:

1. reporting boundary (consolidated reporting recommended for groups);

2. timing (annual cycle and alignment with the financial statements, where available);

3. management of sensitive information (possibility to omit such data with adequate justification);

4. links to financial reporting, ensuring coherence and transparency.

Conclusions

The VSME represents a balanced solution between the expectations of financial market actors and the operational capabilities of SMEs, offering a proportionate and sustainable ESG reporting framework. Its effectiveness will ultimately depend on its ability to be recognised as a common reference point for both large companies and SMEs, thereby becoming a true instrument of dialogue and transparency across the entire value chain.