Small and medium-sized enterprises (SMEs) have been facing relentless information requests from stakeholders about the sustainability performance of their business operations for several years. Published by the European Financial Advisory Group (EFRAG), the Voluntary Sustainability Reporting Standard for non-listed SMEs (abbreviated: VSME) aims to harmonize the various requirements for SMEs to report on sustainability aspects. EFRAG therefore aims to provide SMEs with a reporting standard to make voluntary reporting as simple and standardized as possible. Against this backdrop, EFRAG submitted its voluntary standard on sustainability reporting for non-listed SMEs to the EU Commission on December 17, 2024. The standard was specifically designed for SMEs to report on sustainability aspects, despite not being required to do so.
Why is there a need for a voluntary standard for sustainability reporting?
The Corporate Sustainability Reporting Directive (CSRD) in its latest applicable version only obligates listed SMEs, small and non-complex institutions, and captive (re)insurance companies to produce a sustainability report under specific requirements for fiscal years starting January 1, 2026. Under the EU Commission's "Stop the Clock" directive, the reporting obligation for certain SMEs has already been postponed by two years, to financial years starting on or after January 1, 2028. Micro-enterprises and non-listed SMEs, however, are not required to issue mandatory sustainability reports under the CSRD.
This results in a significant area of application for a voluntary SME standard on sustainability reporting, given the sheer thousands of non-listed SMEs in Germany. However, an SME standard like this needs to meet both the information needs of SME stakeholders and consider the availability of resources within SMEs themselves, as well as their limited reporting capacities.
In particular, the high demand for sustainability information makes it crucial for many SMEs to engage with this topic. Today, SMEs often receive a flood of ESG questionnaires, which encompass a wide range of information requirements with varying levels of detail and largely inconsistent data requests. These questionnaires often originate from banks or insurance companies, as well as from large corporations within SME value chains, which require sustainability data to fulfill their own reporting obligations on the sustainability aspects of their operations. This is referred to as the trickle-down effect.
The VSME aims to consolidate and harmonize the information requirements of the various stakeholder groups. The standard therefore constitutes a sort of minimum requirement catalogue of sustainability information for SMEs, which also takes into account their usually limited resources.
Do the Omnibus proposals impact the VSME?
Under the EU Commission's Omnibus proposals from February 2025, approximately 80% of companies currently required to report under the CSRD will no longer be subject to the sustainability reporting obligation. According to estimates by the European Commission, the number of companies required to report on sustainability aspects in the EU is expected to decrease from approximately 45,000 to about 10,000 companies. The EU Commission considers this a significant step in reducing bureaucracy burdens and compliance costs.
The reduction in the number of companies required to report on sustainability aspects will be achieved by the EU Commission's proposal, according to which only companies classified as large under accounting law will be required to carry out sustainability reporting. The reporting obligation would therefore no longer apply to large limited liability companies with 1,000 employees or fewer. As a result, listed SMEs, which would have been required to prepare sustainability reports from 2028 under the CSRD in conjunction with the Stop the Clock Directive, will no longer fall within the scope of the CSRD in the future. The same would apply to a multitude of companies that are currently required to prepare sustainability reports (first wave companies) or that, according to the CSRD in conjunction with the Stop the Clock Directive, would have to report from 2027. This refers to all large limited liability companies employing 1,000 employees or fewer. Consequently, the scope of application of a voluntary reporting standard like the VSME would significantly expand. However, these changes to the scope of the CSRD are still under negotiation at the EU level. The European Parliament has yet to establish its position on the proposals.
How is the VSME structured?
The VSME is intended to harmonize the reporting requirements of a wide range of stakeholders be applicable to a large number of different SMEs – from very simply structured micro-enterprises with no experience in sustainability reporting to highly diversified medium-sized corporations that operate internationally and have already dealt with various data inquiries from stakeholders. To accommodate these highly divergent framework conditions and interests, EFRAG has opted for a modular design for the VSME. This aims to address the variety of the potential user base and meet the diverse information needs of stakeholders.
Adopting a modular structure, the VSME includes two reporting modules: the basic module and the comprehensive module. The basic module is primarily targeted at micro-enterprises and effectively establishes the minimum requirements for voluntary sustainability reporting. The comprehensive module is designed to better meet the information needs of banks, investors, and business partners, whose information requirements typically exceed the data already covered by the basic module. If a company decides to implement one of these two modules, it must do so in its entirety.
What content requirements does the VSME lay down?
A significant difference in the substance of the VSME and the European Sustainability Reporting Standards (ESRS) is that a materiality analysis is not required as part of the reporting process under the VSME. The reason is that the concept of double materiality is often regarded as too complex and burdensome for SMEs. However, this does not mean that VSME does not allow reporting on certain topics to be omitted. EFRAG uses an "if applicable" approach. Disclosures are only to be made if the issues in question exist in or are applicable to the company, i.e. the issues actually occur within the company. A company applying the VSME must still consider the sustainability issues pertinent to the company and its business model, even if a materiality analysis is not formally conducted.
For the basic module, EFRAG establishes the reporting requirements that allow companies to start reporting on sustainability. It defines information requirements on sustainability issues which can be expected from all companies – regardless of their size, legal form, or structure. The table below provides an overview of the disclosure requirements in the basic module.
| Details in the basic module | |
| B1 | Basis for preparation |
| B2 | Practices, policies, and future initiatives for transitioning towards a more sustainable economy |
| 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 |
| B8 | Workforce – General characteristics |
| B9 | Workforce - Health and safety |
| B10 | Workforce – Remuneration, collective bargaining, and training |
| B11 | Convictions and fines for corruption and bribery |
The comprehensive module includes additional information that addresses the more comprehensive reporting requirements of companies' business partners, such as Principal Adverse Impact indicators under the Sustainable Finance Disclosure Regulation, Pillar 3 disclosures, or disclosures under to the Benchmark Regulation. Table 2 provides an overview of these disclosure requirements.
| Details in the comprehensive module | |
| C1 | Strategy: Business model and sustainability – Related initiatives |
| C2 | Description of practices, policies, and future initiatives for transitioning towards a more sustainable economy |
| C3 | GHG reduction targets and climate transition |
| C4 | Climate risks |
| C5 | Additional (general) workforce characteristics |
| C6 | Additional own workforce information – Human rights policies and processes |
| C7 | Severe negative human rights incidents |
| C8 | Revenues from certain sectors and exclusion from EU reference benchmarks |
| C9 | Gender diversity ratio in the governance body |
Beyond these disclosure requirements, it may be necessary for a company, depending on the nature of its business, to include additional company- or industry specific data in its sustainability report that is not captured by the VSME. This may involve both qualitative and quantitative information. This could be information that is common in the company's field, i.e. that typically occurs in companies operating within a specific industry or sector. Alternatively, it could be information without which the company cannot provide relevant, accurate, comparable, understandable, and verifiable data, and which is therefore specific to the company. The VSME refers to Scope 3 GHG emissions as an example. But again, this is not a mandatory disclosure.
Where do we go from here?
On July 30, 2025, the EU Commission adopted a recommendation that non-listed SMEs and micro-enterprises wanting to voluntarily submit sustainability information use the VSME for this purpose. This also applies to relevant companies in non-EU countries seeking to issue a voluntary sustainability report. Furthermore, the EU Commission advises financial institutions, financial market players, insurance companies, credit institutions, and other entities requiring sustainability information from SMEs to restrict their information requests as much as possible to what is provided under the VSME. In this context, the EU Commission is focusing on the entire VSME, not just the basic module. Finally, the EU Commission recommends that Member States:
- raise awareness of the benefits of voluntary sustainability reporting under the VSME
- take appropriate measures to promote the implementation and acceptance of the VSME
- urge the financial sector and other companies to
- limit their requests for information to the details specified in the VSME, and
- promote digital transformation in terms of effective data exchange.
With the recent publication of the recommendation on the application of the VSME, the EU Commission announced in its Q&As that the VSME could be revised in the near future. This is intended to incorporate the regulatory changes that are expected to be finalized under the Omnibus proposals. The revised VSME would then be adopted by the EU Commission as a delegated act.
A significant number of companies are placing high hopes on the VSME, as it promises to harmonize the variety of data queries related to sustainability information and ideally dispense with the need for various ESG questionnaires. However, this requires the relevant sustainability information to be retrieved and evaluated as automatically as possible in future using databases and algorithms. Only in this way stakeholders will be able to refrain from initiation individual data requests from SMEs in the future. Going forward, the question of the technical implementation of the voluntary reporting standard will also need to be addressed to ensure acceptance of the VSME among users and preparers of sustainability reports alike.
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