A step toward making it easier for SMEs to respond to requests for sustainability information: spotlight on the Voluntary Sustainability Reporting Standard for SMEs (VSME)
SMEs that respond to Corporate Sustainability Reporting Directive (CSRD) information requests or voluntarily report under CSRD may now have a more manageable alternative to reporting under the full set of European Sustainability Reporting Standards (ESRS): on 30 July 2025, the European Commission (the “Commission”) recommended that SMEs follow the Voluntary Sustainability Reporting Standard for SMEs (VSME). The VSME had been developed by EFRAG, the Commission’s technical advisory body for sustainability reporting.
The VSME is relevant for SMEs in two key ways, particularly given the Commission’s proposal significantly to narrow the scope of CRSD and simplify the ESRS, known as the Omnibus I proposal:
- Omnibus I proposes to limit the scope of CSRD to companies with more than 1,000 employees. Companies that therefore find themselves removed from CSRD’s scope may consider voluntarily reporting under the VSME – for example, to better understand and monitor their sustainability performance, as well as increase their attractiveness to investors, lenders and commercial counterparties.
- CSRD generally causes a “trickle-down effect” where large in-scope entities send information requests to smaller entities in their value chain that are not themselves in scope of CSRD. Omnibus I proposes to limit this trickle-down effect by preventing larger entities from asking companies with fewer than 1,000 employees beyond the information in the VSME for purposes of their own CSRD reporting.
Given the Commission’s proposals, it seems likely that the VSME will become the standard for sustainability reporting by SMEs, whether on a purely voluntary basis or as a strategy to get ahead of the rapidly increasing volume of requests for sustainability information from commercial stakeholders.
What information does the VSME request?
The VSME covers the same sustainability issues as the ESRS, but it focuses on SMEs’ fundamental characteristics and is “proportionate” for SMEs. In addition to the disclosure requirements of the VSME, there is guidance to facilitate their application.
At high level, the VSME requires that SMEs disclose relevant information for the short-, medium- and long-term about:
- how it has had and is likely to have a positive or negative impact on people and environment; and
- how environmental or social issues have affected and are likely to affect its financial position, performance and cash flows.
This reporting of information about an SME’s impacts on people and planet and about how sustainability issues affect an SME’s bottom line reflects the fundamental “double materiality” approach of the CSRD/ESRS.
General principles of the VSME
The VSME offers two options for reporting: Basic or Comprehensive. The Basic Module is the minimum requirement, meaning SMEs can choose to report in line with the Comprehensive Module. For micro-undertakings, the Basic Module is the target approach, meaning they only need use certain parts of the Basic Module.
In general, an entity must comply with a module in its entirety[1]. However, an entity must only provide each item of disclosure it considers to be “applicable”. An entity may also omit classified or commercially sensitive information.
Companies must report information that is relevant, faithful, comparable, understandable and verifiable. Companies may therefore need to include additional information not covered in the VSME to give a full picture of its sustainability profile. This includes considering whether to disclose information on Scope 3 greenhouse gas emissions.
Parent companies are recommended to report on a consolidated basis; companies must include comparative information from the second year of reporting; and disclosures must be coherent with a company’s financial statements.
Content of the VSME
In both modules, the VSME organises disclosures into four sections: general information, environmental metrics, social metrics and governance metrics. The Comprehensive disclosures build from Basic, for example, if the Basic Module asks whether the company has put a policy in place, the Comprehensive Module asks for a description of the policy.
The table below gives an overview of the disclosures from both modules with some examples (this is not an exhaustive list).
| Basic | Comprehensive | |
| General information |
Basis for preparation of the sustainability report, such as the subsidiaries included.
Basic company information such as turnover, number of employees and country of primary operations. Whether it has put in place practices, policies and initiatives to transition to a more sustainable economy, if any, as well as targets. |
Key elements of the company’s business model and strategy, such as significant products and markets and main business relationships, as well as key elements that relate to or affect sustainability issues. Descriptions of the practices, policies and initiatives it has put in place to transition to a more sustainable economy. |
| Environmental metrics | Energy usage and estimated gross GHG emissions, including Scope 1 and 2 GHG emissions, pollution, biodiversity, water, resource use, circular economy and waste management. |
Depending on the activities carried out by the company, disclosure of its Scope 3 GHG emissions[2].
If the company operates in a high climate impact sector, information about its transition plan or whether/when it will adopt one. Climate risks, including descriptions of climate-related hazards and transition events plus their time horizons, plus the potential adverse effects of climate risks that may affect its financial performance or business operations.
|
| Social metrics | General workforce characteristics, health and safety incidents and remuneration, collective bargaining and training. |
Additional general workforce characteristics, such as female-to-male ratio at management level.
Whether it has a human rights policy and if it covers child labour, forced labour, human trafficking, discrimination or accident prevention.
Whether it has incidents related to child labour, forced labour, human trafficking or discrimination and the actions being taken to address such incidents. |
| Governance metrics | Convictions and fines for corruption and bribery. | Information about the company’s involvement in sectors of controversial weapons, tobacco, fossil fuel and certain chemicals production. |
Looking ahead and what this means for companies
- We do not know where the Omnibus I proposals will land, as discussions between EU lawmaking bodies may start in Autumn 2025. This includes whether or not the proposed limitation on the scope of CSRD/ESRS to companies with more than 1,000 employees is adopted and whether the VSME will then become the upper limit on the information that in-scope companies can request from out-of-scope companies in their values chains.
- In the same vein, at this stage the Commission has made a recommendation that SMEs report in line with the VSME. If the Omnibus I proceeds as proposed, the Commission plans to adopt a voluntary standard (by means of a delegated act) that would be based on the VSME. Therefore, the Commission calls its current recommendation an “intermediary solution” to address market demands until a voluntary standard is adopted, the content which could vary compared to current VSME.
- All of that said, the VSME is a workable standard that SMEs can use. Preparing a VSME-aligned report – particularly for companies at a relatively early stage of sustainability data collection and reporting – is likely to be a more consistent, streamlined and cost-effective starting point when dealing with multiple requests rather than responding ad hoc as requests come in.
- In the meantime, EFRAG released two additional resources SMEs can access to support their use of the VSME – the first surveys tools for SMEs that wish to report their GHG emissions based on the VSME and the second maps digital platforms and initiatives that support SMEs’ sustainability reporting.
- Lastly, companies must bear in mind the “trickle-down effect” discussed in this article also occurs due to other factors outside of CSRD reporting – for example, larger companies and financial institutions may request information in order to better understand and manage their sustainability-related risks (for example, litigation risks), impacts and/or opportunities, or to satisfy other regulatory requirements, such as those of the Corporate Sustainability Due Diligence Directive (CSDDD). Wherever the Omnibus I lands with limiting the trickle-down effect, SMEs should be prepared to provide sustainability information when requested or risk being at a competitive disadvantage.
For further guidance and tailored advice on anything discussed in this briefing, please get in touch with Kerry Stares or with your usual Charles Russell Speechlys contact.
[1] There is some limited flexibility with this: if a company wants to provide more comprehensive information than is required under the Basic Module, it may also integrate some of the metrics from the Comprehensive Module.
[2] The VSME guidance states that for a company to determine whether disclosing Scope 3 GHG emissions is appropriate, it may screen its significant Scope 3 categories using appropriate estimates pursuant to the Greenhouse Gas Protocol, as well as consider its sector, noting that SMEs operating with manufacturing, agrifood, real estate construction and packaging processes are likely to have significant Scope 3 categories.
