What is the VSME standard?

Quick Answer: The VSME (Voluntary Standard for SMEs) is a sustainability reporting framework developed by EFRAG for non-listed small and medium-sized companies that fall outside the scope of the EU's Corporate Sustainability Reporting Directive (CSRD). It gives smaller businesses a structured, proportionate way to share carbon and wider ESG data with customers, banks, and investors. The standard is voluntary, not a legal requirement, but growing supply chain pressure means many SMEs will need to engage with it regardless.

What is the VSME?

The VSME, short for Voluntary Standard for SMEs, is a sustainability reporting standard published by EFRAG (the European Financial Reporting Advisory Group) in December 2024 and formally recommended by the European Commission on 30 July 2025. EFRAG designed it specifically for non-listed micro, small and medium-sized companies that sit outside the CSRD reporting threshold.

The standard gives these companies a single, consistent template for sustainability disclosures, covering environmental, social and governance topics. Rather than responding to a different questionnaire for every large customer or bank that asks for ESG data, a company can produce one VSME-aligned report and use it across multiple stakeholder requests.

It is worth being clear about what VSME is not. It is not a law. Companies outside CSRD scope have no direct legal obligation to report under it. But the indirect pressure to do so is real and growing, which is why understanding the standard matters even for businesses that have never engaged with formal sustainability reporting before.

Who does the VSME apply to?

The VSME is aimed at non-listed companies that fall below the CSRD thresholds. Following the EU's Omnibus reform (in force from March 2026), CSRD now applies only to companies with more than 1,000 employees and more than €450 million net turnover. Both criteria must be met. Companies below either threshold are outside CSRD scope and are the intended audience for VSME.

That covers a significant proportion of businesses operating in EU supply chains, including many UK-based companies that supply into the EU market. The European Commission has explicitly noted that non-EU companies can use the VSME if they want to provide sustainability information in a format familiar to EU customers, banks, or investors.

The standard is also relevant for companies that were previously in CSRD scope under the older thresholds (250 employees, €40 million turnover, €20 million balance sheet) but have since been moved out by the Omnibus changes. These businesses may already have started sustainability reporting work and can use VSME as a proportionate ongoing framework.

What does the VSME actually require?

The VSME has two reporting levels: the Basic module and the Comprehensive module.

The Basic module covers a lighter set of disclosures that most smaller businesses can realistically provide without significant resource. It includes: - Scope 1 emissions (direct emissions from owned or controlled sources) - Scope 2 emissions (indirect emissions from purchased energy) - Basic social and governance disclosures

The Comprehensive module builds on the Basic module with more detailed requirements. This is intended for situations where a bank, investor, or large customer expects deeper reporting, for example as part of a formal due diligence or lending process.

On the carbon side, Scope 3 value chain emissions are optional under VSME rather than mandatory. This is a deliberate design choice: Scope 3 data is the most complex and resource-intensive to collect, and requiring it from all SMEs would undermine the standard's goal of being proportionate. That said, some stakeholders will ask for it, particularly large customers who need to account for their own Scope 3 supply chain emissions under CSRD.

The VSME is structured to align with the themes in the EU's main European Sustainability Reporting Standards (ESRS), but with significantly reduced detail. A small team can work through the Basic module without needing a dedicated sustainability function.

Why does the VSME matter for smaller businesses?

What is driving SMEs to engage with VSME in practice?

The most direct driver is supply chain pressure. Large EU companies reporting under CSRD must account for their Scope 3 emissions, which means the carbon footprint of their entire value chain, including their suppliers. To do that, they need emissions data from those suppliers. Without a shared standard, each large company designs its own data request, using slightly different definitions and formats. Smaller suppliers end up answering overlapping but inconsistent questionnaires from multiple customers.

The Commission's proposed value-chain cap addresses this directly. It steers CSRD-obligated companies to base their supplier data requests on the VSME, rather than sending open-ended questionnaires. In practice, this means VSME is becoming the default format for sustainability information requests in EU supply chains.

Beyond supply chain requirements, EcoVadis formally recognised VSME as a valid sustainability reporting standard in October 2025 (under question GEN600 in the EcoVadis questionnaire). A company can now submit a VSME-aligned report as supporting evidence across the EcoVadis assessment, covering environmental, social, ethics, and sustainable procurement categories. For companies already managing an EcoVadis rating, this creates a direct efficiency gain: one report serves both purposes.

Banks and financial institutions are also increasingly asking for structured ESG data as part of lending decisions, driven by EU Taxonomy obligations. A VSME report provides a recognised, structured foundation for those conversations.

How does VSME relate to CSRD and ESRS?

CSRD is the EU law. ESRS are the detailed reporting standards that CSRD-obligated companies must use. VSME is a separate, voluntary framework for companies outside CSRD scope.

The three sit in a hierarchy. CSRD sets the legal boundary. ESRS defines what large companies must report. VSME provides a proportionate equivalent for smaller businesses that are not legally required to report but face practical pressure to do so.

One important development is the planned evolution of VSME into a broader "Voluntary Standard" (VS), expected as a delegated act later in 2026. The VS will extend beyond SMEs to cover any company with fewer than 1,000 employees or under €450 million turnover that falls outside CSRD scope, not just those that meet the formal SME definition. The VS builds on the existing VSME content with minor adjustments.

For companies already working through their carbon footprint, the VSME's alignment with the GHG Protocol means that a well-structured emissions inventory covering Scope 1 and Scope 2 will satisfy the standard's core climate requirements. Seedling's outputs align with the GHG Protocol, which means the carbon data produced through the platform maps directly to what VSME requires.

Getting started with VSME reporting

For most smaller businesses, the practical starting point is the carbon data. Scope 1 and Scope 2 emissions are mandatory under the Basic module and are the most straightforward to calculate. Scope 1 covers direct emissions from owned sources such as company vehicles and on-site fuel combustion. Scope 2 covers indirect emissions from purchased electricity and heat.

From there, the social and governance disclosures in the Basic module draw on information most businesses already hold: employee headcount, policies, governance structures. The Comprehensive module requires more, but most companies will not need to go there unless a specific stakeholder asks for it.

The key practical point is that VSME reporting does not need to be a standalone project. If a company has already measured its carbon footprint to a recognised standard, it has the hardest part of the Basic module covered. The remaining disclosures can be built around existing internal records.

For businesses that have not yet measured their emissions, VSME provides a clear reason to start. The standard is not going away, and the supply chain pressure behind it will only increase as more large companies move into CSRD reporting cycles and begin requesting data from their suppliers in earnest.