The VSME reporting standard became considerably more important after Omnibus

The EU Commission's recently published omnibus proposals aimed at amending the EU Corporate Sustainability Reporting Directive (CSRD) confirmed that most non-listed small and medium-sized enterprises (SMEs) are likely to remain exempt from mandatory sustainability reporting. This regulatory clarification makes voluntary frameworks such as the Voluntary Sustainability Reporting Standard for non-listed SME (VSME), which was published as a draft by EFRAG in December 2024, all the more relevant. This standard was developed specifically for non-listed SMEs and offers a simplified and voluntary approach to sustainability reporting. Its development is a response to the growing demand for consistent and comparable ESG data from SMEs, driven by supply chain expectations, financing conditions and changing market requirements.

However, as the draft VSME was published before the omnibus proposals, which exempt many SMEs - including listed companies - from reporting requirements, the VSME will receive more attention. In particular, companies that have prepared for CSRD reporting, are now outside the scope of CSRD and have a functioning ESG reporting, strategy and governance process will be looking for a reliable and recognized framework as an alternative to ESRS.

Given this increased focus, we expect to see changes to the draft before it comes into force to reflect the new target audience of the VSME. Indeed, many market participants expect or hope that a double materiality assessment (DMA) will be included in the VSME.

**The VSME standard - why is it important?

Small and medium-sized enterprises (SMEs) are the cornerstone of the European economy. They make up 99% of all businesses and account for a significant share of employment and innovation. However, most SMEs are not currently subject to mandatory sustainability reporting under the EU's Corporate Sustainability Reporting Directive (CSRD) and will not be in the future due to the EU Commission's omnibus proposal.
Nevertheless, SMEs are increasingly facing pressure from banks, investors and corporate customers to disclose ESG-related information. The VSME standard provides a streamlined and proportionate framework that can help SMEs to comply with these information requirements without being overburdened by complexity.

**What does the VSME standard include?

The December 2024 draft VSME Sustainability Reporting Standard introduces a modular framework that includes two reporting options:

Basic module

This simplified module enables SMEs to report on material sustainability information.
It has been designed to minimize the reporting burden while covering key environmental, social and governance topics.

The information is primarily qualitative, easy to understand and designed to meet the needs of most stakeholders, especially in value chains.

Comprehensive module

This module is aimed at SMEs with more advanced sustainability practices or those that are subject to higher requirements from external stakeholders.
It includes additional quantitative and policy-related disclosures.

While still voluntary and simplified in comparison, the comprehensive module brings SMEs closer to CSRD requirements and helps them prepare for potential future regulatory obligations.

Both modules are flexible and scalable, so SMEs can start with the basic module and expand their reporting scope over time. Note that the current version of the VSME does not include materiality testing.

Key benefits for SMEs

• Respond to stakeholder expectations: VSME reporting helps SMEs respond to ESG information requests from customers, investors and lenders.
• Streamlined reporting: By using a standardized format, SMEs can reduce the administrative burden of responding to multiple individual ESG questionnaires.
• Future-proofing: In light of increasing sustainability regulations, early adoption of the VSME standard helps SMEs to prepare and build internal capacity.
• Improving access to finance: Transparent ESG data can improve creditworthiness and direct SMEs towards sustainability-related financing instruments.

Challenges to be considered

• Capacity constraints: Many SMEs have neither dedicated staff nor sustainability expertise, making even simplified reporting a challenge.
• Availability of data: Collecting reliable sustainability data can be difficult, especially for smaller companies that do not have existing systems and processes in place to collect, manage and analyze sustainability data.
• Incentives for adoption: As the standard is voluntary, its uptake may depend heavily on recognition and promotion by financial institutions and supply chain leaders.

A way forward for SMEs

• Understand your stakeholders' requirements: Identify which customers, lenders or partners are requesting ESG information.
• Start with the basic module: Use the basic module to cover basic disclosures and test internal capabilities.
• Build internal processes: Start collecting relevant data and involve employees from different departments to increase awareness and efficiency.
• Consider switching to the comprehensive module: For SMEs facing higher demands or preparing for growth, gradually expand the scope of your reporting.
• Seek external support: Consulting services can help SMEs with data point selection, data collection and reporting strategies.

**Conclusion

With its two-module approach, the VSME sustainability reporting standard offers flexibility and proportionality, making sustainability reporting more accessible and less resource-intensive.
Magnolia Consulting supports SMEs at every step of their sustainability journey - from first-time reporters using the basic module to advanced SMEs preparing comprehensive disclosures. Contact our team to learn how your company can benefit from early adoption of the VSME standard and align with the future of sustainable business.