VSME Standard for SMEs:
A Practical Guide to ESG Reporting
What is the VSME?
The Voluntary Sustainability Reporting Standard for Non-Listed SMEs (VSME) is a simplified ESG framework developed by EFRAG to help small and medium-sized businesses report on their sustainability performance.
Unlike larger corporations, SMEs often face challenges with complex reporting requirements. The VSME standard makes sustainability reporting more accessible, offering a proportional, practical, and flexible approach tailored for businesses outside the scope of CSRD (Corporate Sustainability Reporting Directive).
With the European Commission’s endorsement, VSME is now officially positioned as the EU-backed solution for SME sustainability disclosures, closing the data-gap between SMEs and their large-company partners.
By adopting the VSME framework, SMEs can improve transparency, gain trust, and future-proof their operations in a fast-evolving regulatory environment.
Who Can Use the VSME Standard?
The VSME reporting standard is designed for non-listed micro, small, and medium-sized enterprises (SMEs) across all sectors. Whether you’re in manufacturing, retail, or services, the VSME tool provides a structure to disclose your ESG performance in line with stakeholder expectations, without needing to fully adopt the ESRS (European Sustainability Reporting Standards).
- Small manufacturers can report on energy use, emissions, and resource efficiency.
- Retailers and e-commerce brands can highlight ethical sourcing and product circularity.
- Service-based SMEs can showcase workplace diversity, governance, and transparency practices.
While the VSME is sector-agnostic, it allows for industry-specific flexibility. For example:
- Pollution and waste disclosures apply only to high-impact industries or companies already subject to national rules like IED or EMAS.
- Appendix B of the VSME standard by EFRAG maps out relevant ESG topics by sector, covering agriculture, chemicals, manufacturing, and more.
Key Components of the VSME Framework
The VSME ESG reporting framework includes two modular paths to suit businesses of different sizes and sustainability maturity: a Basic Module and a Comprehensive Module.
Basic module
Ideal for micro (< 10 employees) and small enterprises or first-time reporters, the Basic Module now consists of 11 core disclosures covering the KPIs most frequently requested by value-chain partners, such as Scope 1 & 2 GHG emissions, energy use, workforce metrics and anti-corruption policies.
Comprehensive module
The Comprehensive Module builds on the Basic set with 9 additional disclosures often required by banks and investors. For example:
- C2: short narrative of ESG practices & future initiatives
- C3: GHG reduction targets & transition plan
- C7: confirmed severe value-chain incidents
- C8: exclusion from EU reference benchmarks
Good to know: VSME does not require a full materiality assessment. Instead, you only report items “if applicable,” keeping the workload proportionate while maintaining alignment with SFDR, EBA Pillar 3 and the Benchmark Regulation.
Once a company selects a module, it must apply it in full, reporting only on topics that are relevant. This keeps VSME reporting flexible but focused.
Explore the VSME standard EFRAG published for a detailed overview of both modules.
CSRD vs VSME: What’s the Difference?
Both VSME and ESRS are part of the EU’s sustainability reporting landscape, but they serve different purposes.
ESRS: Mandatory, detailed, and designed for large companies
The European Sustainability Reporting Standards (ESRS) apply under the CSRD and are mandatory for large and listed companies. These require granular data across multiple topics, from biodiversity to climate transition plans.
VSME: Voluntary, simplified, and built for SMEs
The VSME standard by EFRAG is voluntary and focuses on proportional, relevant disclosures. It enables SMEs to participate in ESG efforts without the heavy lift of ESRS compliance.
The Omnibus regulation has reinforced VSME as the preferred ESG reporting tool for companies with fewer than 1,000 employees, encouraging its adoption across Europe.
Mapping the overlap: ESRS vs VSME
VSME vs ESRS boils down to complexity: ESRS is deeper and broader, while VSME offers a lighter, focused entry point for SMEs just starting their ESG journey.
Why SMEs Should Adopt the VSME Standard
Even though the VSME ESG standard is voluntary, it’s quickly becoming a strategic tool for forward-thinking SMEs. Here’s why:
1. Stay in the supply chain
Under CSRD, large companies must collect ESG data from suppliers. Using the VSME tool, now endorsed by the European Commission, SMEs can speak the same language and avoid being excluded from procurement processes.
2. Get better access to finance
Banks and investors are increasingly focused on ESG data. The Commission’s Recommendation explicitly calls on financial institutions to rely on VSME KPIs, making it easier for SMEs to secure loans or investment.
3. Boost internal performance
VSME isn’t just about compliance. It helps SMEs identify risks, measure sustainability progress, and build a stronger, more resilient business.
4. Stand out with customers
Today’s buyers value transparency. VSME reporting allows SMEs to differentiate themselves, share ethical practices, and build trust.
5. Prepare for future regulations
VSME aligns with CSRD principles, making it a no-regret move if regulatory thresholds change. Start now, grow later. Learn more about preparing your VSME report and why early adoption matters.
VSME Reporting Made Simple with AI-Powered Software
VSME reporting doesn’t need to be overwhelming. With Karomia’s AI-powered platform, you can go from scattered documents to a structured, shareable VSME report, without getting lost in the regulation. Here’s how to get it done in five streamlined steps:
Step 1: Start with what you already have
Before diving in, gather what’s already available. Karomia makes use of existing documents, invoices, utility bills, HR policies, or sustainability memos, to kickstart your VSME report. You probably have more data than you think.
Step 2: Let Karomia scope and prefill your report
Once your documents are uploaded, Karomia automatically defines your reporting scope based on your business profile. Using your inputs and publicly available data, the platform prefills a large portion of your VSME disclosures, saving time and ensuring nothing essential is missed.
Step 3: Review and complete your VSME report
You don’t need to go line by line. Just focus on what’s still incomplete.
Karomia’s AI assistant guides you through the rest, offering tips, examples, and sourcing suggestions for each missing data point.
Step 4: Collaborate with your team or consultant
Invite colleagues or external advisors directly into the platform. Use comments, tags, and status tracking to coordinate input and maintain quality control. You stay in charge of final validation. We make collaboration easy.
Step 5: Share and publish your VSME report
Once complete, generate your report in PDF, Excel, or via API, perfect for financial partners, customers, or internal stakeholders. You can even publish an interactive ESG dashboard on your website as your company’s sustainability passport.
The Future of VSME Reporting in the EU
Due to the Omnibus update and the 2025 Commission Recommendation, the VSME standard is quickly gaining ground. It’s being adopted by Wave 2 companies and SMEs responding to supply-chain and investor pressure.
In the coming years, expect:
- More updates including the three new guidance documents (C2, C3, C7)
- Digital end-to-end reporting via the official Excel/XBRL tools
- A shift toward market-driven ESG transparency, not just top-down rules
The VSME is here to stay, and adopting it now means staying ahead, not catching up later.
Frequently Asked Questions
Does the European Commission support VSME?
Yes. In July 2025 the Commission issued a formal Recommendation endorsing VSME as the reference standard for non-listed SMEs and encouraging banks, investors and large corporates to use its KPIs.
What is the difference between VSME and ESRS?
VSME is a voluntary, simplified ESG standard for SMEs, while ESRS is mandatory under CSRD for large and listed companies. VSME focuses on proportional disclosures, while ESRS requires detailed and comprehensive ESG data.
What are the VSME Basic and Comprehensive modules?
The VSME Basic Module is for small or first-time reporters and covers core ESG topics. The Comprehensive Module adds advanced disclosures like Scope 3 emissions and is ideal for SMEs working with investors or large clients.
Is VSME reporting mandatory for SMEs?
No, VSME reporting is currently voluntary. However, it is recommended by the EU’s Omnibus regulation for companies with fewer than 1,000 employees and is increasingly expected by stakeholders.
Is VSME relevant if we’re not in a high-impact sector?
Yes. Even low-impact sectors face ESG data requests from banks or clients. VSME helps all SMEs report clearly and efficiently, regardless of industry.
Is VSME aligned with the CSRD?
Yes. VSME is aligned with CSRD, offering a simplified framework based on ESRS topics, tailored for SMEs not in scope of mandatory reporting.
How often do I need to update the VSME report?
VSME reports should be updated annually, ideally aligned with your financial year. Reuse of data is allowed if no material changes occurred.