Sustainability reporting has emerged as a significant hurdle for numerous small and medium-sized enterprises (SMEs). Financial institutions, investors, and major corporate partners are requiring SMEs to provide environmental, social, and governance (ESG) data. However, the lack of a unified framework leaves these businesses overwhelmed by a multitude of inquiries.
This creates a challenging situation for businesses. Unlike major corporations, smaller firms may lack specialised sustainability teams or the capacity to create customised ESG reports. Consequently, many find themselves frequently investing precious time and resources to solely fulfil stakeholder demands.
In order to help with this, the European Commission tasked EFRAG with developing a voluntary reporting framework, specifically designed for non-listed SMEs. This is the VSME, the Voluntary Sustainability Reporting Standard for SMEs. It’s a simplified framework designed to streamline disclosures and improve SMEs’ access to the financing and opportunities that come from ESG reporting.
But what exactly is this standard, how does it benefit SMEs, and why should you report using it?
What is the VSME standard?
The VSME standard is a voluntary ESG reporting framework specifically designed for small and medium-sized businesses that are both not listed and do not fall under the Corporate Sustainability Reporting Directive’s (CSRD) scope. It is especially important now that the current scope of the CSRD has been lessened under the Commission’s ‘Omnibus’.
EFRAG developed this standard, in response to the growing demand for a framework for ESG data for SMEs. Despite not being legally required to disclose ESG information, in practice many SMEs do have to provide sustainability data to meet stakeholder demands. This is why SMEs need their own voluntary framework, to be able to report if they need to while having a standardised way to do so.
Instead of SMEs having to complete multiple, uncoordinated questionnaires, the VSME provides a single standard that stakeholders can use to assess ESG performance.
The VSME is not just limited to small businesses either, it can apply to any companies with just under 1,000 employees. This broader scope ensures that more businesses can benefit from a harmonised but voluntary ESG reporting system.
The VSME features two levels of reporting, the Basic Module and the Comprehensive Module. The Basic Module puts into place a foundation for reporting across four key areas:
- General Information
- Environmental Metrics
- Social Metrics
- Governance Metrics
This module includes 11 ESG disclosures, all of which are simplified and focus only on essential metrics.
For SMEs who need to report in more detail, the Comprehensive Module adds on to the Basic Module with 9 additional disclosures that cover:
- Business Model and Strategy
- Practices and Policies
- Scope 3 Greenhouse Gas (GHG) Emissions
- Climate Risks and GHG Targets
- Human Rights
The VSME offers a straightforward, structured framework for ESG reporting. It offers a practical approach for businesses not under the CSRD to monitor and report ESG information, avoiding the more stringent requirements of complete CSRD compliance.
What does this mean for SMEs?
According to EFRAG, the objective of the VSME as a standard is to support SMEs in:
(a) providing information that will help satisfy the data needs of large undertakings requesting sustainability information from their suppliers;
(b) providing information that will help satisfy data needs from banks and investors, therefore helping undertakings in their access to finance;
(c) improving the management of the sustainability issues they face, i.e. environmental and social challenges such as pollution, workforce health and safety. This will support their competitive growth and enhance their resilience in the short-, medium- and long-term; and
(d) contributing to a more sustainable and inclusive economy
ESG reporting creates several challenges for SMEs. Reporting can be a significant cost for small and medium-sized businesses, both monetarily and in time and resources. Gathering data, responding to requests, and potentially hiring ESG consultants all add up for SMEs.
Small and medium enterprises frequently lack the required expertise and personnel to create sustainability reports, much less tailor them for various stakeholders. Without a straightforward method to deliver ESG data, these businesses may find it challenging to obtain green funding or draw in investors focused on sustainability.
The introduction of the VSME is expected to:
- Reduce the reporting burden
- Make SMEs more attractive to investors
- Help companies integrate sustainability into their overall strategy
- Help SMEs access sustainability-based financing
This means several things for the wider ESG landscape. Because who needs to report under the CSRD is changing with the ‘Omnibus’, more companies may be looking to adopt voluntary frameworks to continue their ESG reporting journey before they even have to report under the CSRD.
This means that VSME could become the go-to reporting standard, as it is being set up to be the framework to use when companies are outside the CSRD scope.
It also means that SMEs working with these CSRD-reporting companies could expect a slower rollout of ESG data requests. Companies that were going to have to report in 2026 may now get a two-year delay, meaning the first data they would report on would be from 2027.
Even with these changes, ESG reporting is not going away.Businesses that view reporting as a strategic asset rather than merely a compliance requirement will be more future-ready.
Why should SMEs report?
Despite the uncertainty around the ‘Omnibus’ package, as it has only been proposed, companies that prepare now will be in a stronger position moving forward. So, how exactly does the VSME help SMEs, and why should they report using it?
Preparedness for Future Compliance
ESG reporting requirements may expand in the future, the landscape is still uncertain and constantly evolving. Although the VSME is voluntary, using the framework now allows businesses to stay ahead of potential regulatory changes.
It also means companies will develop ESG reporting capabilities before requirements like the CSRD become mandatory for them.
Easier Data Management and Less Reporting Burden
Companies implementing an ESG reporting system today will be more prepared to handle requests for data from regulators and stakeholders. Having a standard reduces administrative burdens and improves efficiency.
Having a reporting process in place also means earlier detection of ESG risks, which allows companies to take proactive measures. Overall, it strengthens long-term business sustainability and resilience.
Competitive Advantage
Companies that begin tracking their ESG impacts now will stay ahead of competitors that delay their ESG reporting. It means they are differentiated from companies that have not yet aligned with standards, and establishes better market positioning in sustainability-conscious industries.
Sustainability is increasingly distinguishing various sectors. Companies that share ESG metrics via the VSME can enhance their brand image by showcasing their commitment to sustainability, setting themselves apart from competitors that fail to disclose ESG achievements.
Improved Access to Financing
ESG factors are increasingly becoming key investment criteria.Transparent ESG reporting builds trust with investors and financial institutions, making it easier to secure funding.
The VSME can help businesses strengthen loan applications by providing structured ESG data, attract sustainability-focused investors and access green finance opportunities more easily.
Strengthened Business Relationships
A standardised reporting framework strengthens relationships with stakeholders, with improved corporate reputation through consistent and reliable ESG disclosures.
Many large companies now require sustainability data from suppliers as part of their own ESG reporting. Implementing the VSME enables organisations to fulfil sustainability standards in their supply chains, minimize the chances of contract losses from insufficient ESG information, and foster trust with corporate partners and clients.
How Convene can help with ESG Reporting
As the European Union establishes a more simplified ESG reporting process for SMEs, companies should be taking proactive steps to prepare for reporting with the VSME.
It’s important to select the right reporting approach for your organisations.If you are new to sustainability reporting, start with the Basic Module. Consider the additional Comprehensive module if investors and stakeholders require more detailed data in reports.
It’s also crucial to establish an effective reporting system. You can use existing financial and operational data to build your ESG report. You can also leverage digital platforms and ESG reporting software to streamline data collection.
Companies should be prepared for supply chain and greenhouse gas (GHG) emissions data requests. Large companies will continue to request ESG data from SMEs, and so using VSME reporting ensures you’re ready without unnecessary complexity.
The ‘Omnibus‘ indicates a move towards simplified reporting but does not remove the need for ESG reporting in general. Rather, it provides a streamlined, organised method for SMEs and companies not covered by the CSRD via the VSME.
Companies should start aligning with VSME now, to have that reporting process in place and ensure a smoother transition to potential ESRS reporting.
Convene ESG provides an end-to-end platform to collect data, track progress, compare with peers, align with frameworks and produce ESG reports.
With Convene ESG, you can collect your data for all the necessary metrics in the CSRD legislation, ensuring that you are compliant with regulations. With various global and regional frameworks also built in to Convene ESG, you will easily comply and report against any other standards without the need to repeat the reporting process.
Convene ESG is designed to make the reporting process as easy as possible, so you can be prepared for the changes to and challenges of ESG regulations.
