How SMEs Can Report ESG Data Without the CSRD Burden
VSME is a voluntary framework developed by the European Financial Reporting Advisory Group (EFRAG) to help unlisted micro, small, and medium- sized enterprises report on their sustainability performance.
It was introduced in Dec 2024 as a more accessible alternative to the Corporate Sustainability Reporting Directive, which imposes more rigorous requirements on larger companies.
The EU recognized that many SME’s lack the resources to comply with CSRD – level reporting. Yet, large corporations, banks, and investors still demand ESG data from their supply chains. VSME fills this gap by offering a streamlined, scalable way for SMEs to stay transparent and competitive without the administrative burden.
The standard requests information on ESG split in two modules. Basic Module: covers essential metrics like energy use, waste, workforce data, and safety – ideal for companies just staring out.
Comprehensive Module: Adds deeper disclosure on climate transition plans, GHG reduction targets, human rights, and biodiversity.
Companies can choose what’s relevant to them – there is no need for external audits and double materiality assessments.
The VSME reporting format is designed with the realities of small and medium-sized enterprises in mind. It’s entirely voluntary, meaning there’s no legal obligation to adopt it—but doing so can be strategically valuable, especially for businesses looking to build credibility and respond to growing ESG expectations.
What makes it especially practical is its modular nature. SMEs aren’t expected to report everything all at once; instead, they can choose disclosures that match their capacity and the needs of their stakeholders. Whether a business is just starting its sustainability journey or already has systems in place, the format adapts to both basic and more comprehensive approaches.
It’s also narrative-friendly, encouraging companies to go beyond numbers and share the story behind their data. This helps contextualize performance, explain trade-offs, and build trust with audiences who want to understand not just what’s happening, but why.
Importantly, there’s no audit requirement, which significantly reduces cost and complexity—making it more accessible for resource-constrained teams. And because it’s XBRL-ready, the format supports digital reporting and machine-readability, aligning with modern data practices and regulatory trends.
Finally, it’s stakeholder-aligned. Whether responding to ESG requests from clients, financiers, or regulators, the VSME format helps SMEs communicate clearly and confidently, without overextending themselves
Why does it matter?
· Keeps SM E in the game: even if exempt from CSRD, SME can still meet stakeholder expectations
· Improves access to finance: banks and investors increasingly require ESG disclosures
· Builds resilience: helps companies identify sustainability risks and opportunities.
· Supports the EU Green Deal: encourages inclusive participation in Europe’s sustainability transition.
What to consider:
To begin preparing for VSME reporting, it’s important to first conduct a gap assessment. This helps clarify which ESG data is already available within the business and what still needs to be collected. Once the data landscape is understood, the next step is to evaluate system readiness—looking at whether current processes and internal controls are equipped to support consistent and credible reporting. Finally, the business should consider its strategic position: based on stakeholder expectations and internal capacity, it can choose to adopt either the basic or comprehensive disclosure module. This ensures the reporting approach is both practical and aligned with external demands.
What’s next?
The European Commission has framed the VSME framework as a provisional yet strategically significant mechanism, intended to facilitate SME engagement in sustainability reporting until a formal voluntary standard is enacted.
It also serves to delineate the boundaries of the value chain cap, establishing reasonable limits on the sustainability data that larger companies can request from SME within their supply networks. In practice, this means the format sets boundaries to prevent larger firms from overburdening SMEs with excessive or unrealistic ESG data requests. Instead of demanding full-scale reporting that may be costly or impractical for smaller suppliers, the VSME framework encourages proportionality. It ensures that SMEs contribute meaningful data without being stretched beyond their capacity.
