For small and medium-sized enterprises (SMEs), sustainability reporting is no longer a question of if but when. Across Europe, banks, investors, and large corporate clients are increasingly asking their smaller partners to share environmental, social, and governance (ESG) data. This pressure doesn’t come from regulation alone, but from the marketplace itself. SMEs are at the heart of Europe’s economy, making up 99% of all businesses and over 25 million enterprises across the Union. Their role in supply chains, financing, and employment means that transparency in their practices is now viewed as essential.
People in the office of a medium-sized enterprise reviewing sustainability charts, with wind turbines visible in the distance. AI generated picture.
The challenge? Traditional reporting frameworks like the Corporate Sustainability Reporting Directive (CSRD) were designed for large, listed companies. Applying those same complex standards to SMEs would be unrealistic and burdensome. That’s where the VSME Standard—the Voluntary Sustainability Reporting for SMEs—enters the picture. Officially adopted by the European Commission in July 2025, it offers a simplified, proportional way for SMEs to demonstrate their sustainability performance and respond confidently to external requests.
For SMEs, the ‘VSME-ESRS’, which stands for ‘Voluntary Small Medium Enterprise – European Sustainability Reporting Standard’, and in short VSME, isn’t just about ticking boxes. It’s about turning transparency into a competitive advantage, improving access to finance, and building trust with stakeholders—all while keeping the reporting burden manageable.
ESG chart.
In the sections that follow, we’ll unpack what the VSME Standard is, why ESG reporting matters for SMEs, and how it differs from more complex frameworks like the European Sustainability Reporting Standards (ESRS) or the CSRD. We’ll also look at the market responses from SME associations and industry groups, explore how VSME is being positioned within Europe’s broader sustainability reporting ecosystem, and share practical steps SMEs can take to leverage VSME as a business opportunity rather than a compliance burden.
What the VSME Standard looks like in practice
The VSME Standard is designed to give SMEs a clear, practical framework to share their sustainability information. At its core, it’s about making ESG reporting manageable and proportionate for companies that don’t have the resources of large corporations.
ESG table.
The VSME framework is built around two levels of disclosure:
- The Basic Module: This is the entry point. It contains 11 core disclosure requirements that cover the essentials of ESG: general company information, environmental indicators like energy use and greenhouse gas emissions, social factors such as workforce composition and working conditions, and governance topics including anti-corruption practices. These indicators were selected because they are the most frequently requested by banks, investors, and large business partners, meaning that a basic VSME report can satisfy the majority of external data requests.
- The Comprehensive Module: This is optional and adds 9 additional disclosure requirements for SMEs that want to go further. It addresses areas such as transition plans, reduction targets, and specific ESG initiatives. This module is intended for SMEs with greater maturity or ambition in sustainability, who want to showcase progress and leadership.
A key innovation of VSME is the ‘if applicable’ principle. Instead of forcing every SME to complete every disclosure, the framework only asks for information that is relevant to the business context. This flexibility ensures that SMEs can report without being overburdened.
At the same time, VSME remains aligned with the ESRS in terms of definitions and themes. That means SMEs reporting under VSME are speaking the same language as their larger counterparts—but with a fraction of the workload. Importantly, no third-party verification or audit is required under VSME, keeping costs down while still building trust.
Read more: Preparing for the future: How SMEs can align with net-zero targets
In practice, VSME gives SMEs a ready-made template to structure sustainability disclosures, cutting through the noise of ad-hoc questionnaires and giving them confidence that they are meeting the expectations of regulators, financiers, and partners in a standardised way.
Background: From CSRD to the new VSME Standard
The Corporate Sustainability Reporting Directive (CSRD) is a cornerstone of the EU’s efforts to make sustainability reporting more consistent, comparable, and reliable across the single market. It requires large companies and listed SMEs to disclose extensive information on their ESG performance in line with the ESRS. These standards cover everything from emissions and resource use to workforce practices and supply chain impacts, and they are designed to provide investors and regulators with a detailed, forward-looking picture of business resilience and responsibility.
Read more: What is CSRD and how does it affect your business?
However, while this level of reporting is feasible for large corporations with dedicated compliance teams, it can be disproportionately burdensome for smaller businesses. Recognising this challenge—and acknowledging that most SMEs are not directly in scope of CSRD—the European Commission worked with the European Financial Reporting Advisory Group (EFRAG) to create a lighter, voluntary framework: the VSME (Voluntary Sustainability Reporting for SMEs) Standard.
Unlike the ESRS, VSME reporting is optional and designed to be practical for everyday business operations. It provides a streamlined template of 11 core disclosures, plus optional modules for SMEs that want to go further. Importantly, it follows the same thematic pillars as the ESRS but applies the ‘proportionality principle’, meaning SMEs only need to report on data that is feasible and relevant to their business.
By aligning with CSRD’s overarching objectives while easing the compliance burden, VSME effectively acts as a bridge between smaller businesses and larger CSRD-regulated companies. It ensures that SMEs can provide the right level of sustainability information without being overwhelmed, while giving banks and corporate clients the clarity and comparability they increasingly demand.
Read more: Aligning with CSRD: the smart move for future-proofing your business
Why should you adopt the VSME framework?
For SMEs, and especially micro enterprises, adopting the VSME framework is about positioning for growth and resilience. Even though the standard is voluntary, market forces are making ESG transparency unavoidable. Banks, investors, and larger business partners increasingly require reliable data on carbon footprint emissions, workforce practices, and governance to make informed decisions. By reporting through VSME, SMEs can respond confidently to these requests without filling in endless bespoke questionnaires from every client.
Beyond responding to pressure, adopting VSME can be a strategic advantage. By mapping out sustainability indicators now, SMEs can identify efficiency gains (such as reduced energy use), strengthen trust with clients and financiers, and improve competitiveness in tenders and supply chains. According to European Family Businesses, VSME also provides SMEs with a ‘rare opportunity to prepare at their own pace’—giving them room to shape their sustainability journey proactively instead of reactively.
Read more: SME carbon footprints: a practical guide
In short, early adoption of VSME helps SMEs future-proof their business, position themselves as credible partners, and take practical steps towards embedding sustainability in strategy—all without the heavy compliance burden that large companies face.
VSME EU compliance: What SMEs need to know
When the European Commission adopted the VSME Standard in July 2025, it was more than just another policy announcement. It marked a shift in how the EU expects sustainability information to flow through the economy. The VSME sits within the EU’s broader compliance landscape as a voluntary tool, but one with growing weight.
A key driver here is the Omnibus Simplification Package, which proposes raising the CSRD threshold to 1,000 employees. This adjustment removes about 80% of companies that were initially expected to fall under mandatory CSRD reporting. Instead, those mid-sized companies (250–1,000 employees) can now look to the VSME as the most relevant reporting framework. In effect, VSME has gone from a helpful option for small businesses to a de facto standard for a much larger segment of the market.
Read more: SME sustainability tools: How they help your business grow
And the scale of this shift is enormous. With over 25 million companies in Europe, more than 24 million are micro-enterprises with fewer than 10 employees, around 1.3 million are small businesses, and just over 210,000 are medium-sized enterprises. By contrast, only 43,000 companies qualify as ‘large’, and only some of those fall under CSRD’s reporting obligations. This means that for the bakery down the street, the local law office, or the small hotel on a regional road, the VSME Standard creates, for the first time, a clear and standardised connection to the sustainability disclosures of Europe’s biggest companies.
Another important compliance link is the ‘value-chain cap’. The European Commission has indicated that larger companies subject to CSRD should not ask their SME suppliers for more ESG information than what the VSME Standard requires. This means SMEs can use VSME as a shield against ever-expanding questionnaires from clients or banks—confident that their disclosures are aligned with what regulators deem ‘reasonable’.
In fact, SME associations such as SMEunited have welcomed the move, calling the VSME a ‘milestone in simplification’ and stressing that companies, banks, and investors should not go beyond its data points when requesting information.
For SMEs, VSME EU compliance is about showing stakeholders that they are aligned with Europe’s sustainability agenda, without carrying the full weight of ESRS-level reporting. By adopting VSME, SMEs can prove readiness, gain credibility with investors and supply chains, and keep ahead of potential regulatory shifts—all while keeping compliance costs under control.
VSME vs ESRS: Understanding the differences
At first glance, the VSME Standard and the European Sustainability Reporting Standards (ESRS) may seem like they cover the same ground. Both frameworks address the full spectrum of ESG aspects. But the difference lies in scope, scale, and proportionality—and for SMEs, those distinctions make all the difference.
- Number of disclosures: ESRS contains dozens of disclosure requirements across more than 1,000 data points, covering everything from strategy to value chain impacts. By contrast, VSME pares this down to just 11 core disclosures in its Basic Module, with an additional 9 optional ones in its Comprehensive Module. This makes reporting achievable for companies without large compliance teams.
- Materiality: Under ESRS, companies must conduct a double materiality assessment, analysing both how sustainability issues affect their business and how their business impacts society and the environment. VSME does away with this step, using the ‘if applicable’ principle: SMEs disclose only when a data point is relevant to their operations.
- Value chain: ESRS requires companies to report on their entire upstream and downstream value chain—a complex task even for multinationals. VSME shifts the focus inward, asking SMEs to report on what is within their immediate control, while still aligning with the needs of larger partners.
- Assurance: ESRS disclosures will require third-party assurance. VSME reports do not require audits or external verification, easing costs and the administrative burden.
Read more: The power of sustainability: Why investing in sustainability drives faster company growth
In practice, this means VSME is not a ‘light’ version of ESRS but a different standard altogether, built with SMEs in mind. By aligning its structure with ESRS while cutting back on complexity, VSME ensures that SMEs can contribute meaningfully to sustainability transparency without facing requirements designed for corporations 100 times their size.
CSRD and the VSME Standard
The CSRD was never meant to cover Europe’s entire business landscape. Its mandatory scope applies mainly to large companies and listed SMEs, leaving the vast majority of non-listed micro, small, and medium-sized enterprises out of direct obligations. Yet in practice, these businesses are indirectly affected. Banks increasingly request ESG data when assessing loan eligibility. Large corporates, bound by CSRD, push requirements downstream into their supply chains. Customers, too, are starting to expect transparency.
This is why the VSME Standard matters as more than just a voluntary option. It functions as a voluntary reporting framework for micro enterprises and SMEs, aligning them with Europe’s sustainability agenda without imposing the full weight of ESRS reporting. For the smallest businesses—from family-run bakeries to law offices and local manufacturers—it provides a clear way to answer ESG data requests confidently while keeping requirements proportional to their size and resources.
Two men discussing sustainability plans inside a factory warehouse, with a forest visible through the open door. AI generated picture.
For mid-sized companies, especially those with 250–1,000 employees who were recently lifted out of mandatory CSRD reporting by the Omnibus Simplification Package, VSME offers a path to stay in sync with stakeholders. It allows these firms to prepare at their own pace, strengthen market credibility, and demonstrate leadership in sustainability without carrying the compliance burden of large enterprises.
Read more: Overcoming sustainability challenges: practical solutions for your business
In short, CSRD for SMEs is about more than just regulation. It’s about recognising that every business, no matter its size, plays a role in Europe’s transition towards more sustainable practices. And the VSME Standard is the tool that makes this possible, bridging the gap between the obligations of large companies and the realities of the SME sector.
How VSME helps SMEs with value chain sustainability reporting
One of the most practical features of the VSME Standard is its use of the ‘if applicable’ principle. Instead of requiring every SME to complete every disclosure, the framework asks companies only to report on data points that are relevant to their own operations.
For example, if a business has no sustainability certifications, there is no need to disclose one. If a company does not have production processes that consume significant water, water-use reporting isn’t required. This tailored approach ensures SMEs can focus on providing meaningful information without wasting resources on irrelevant disclosures.
In the context of value chain sustainability reporting, this matters greatly. Larger companies covered by CSRD will request ESG data from their suppliers, many of whom are SMEs. Without proportionality, those requests could overwhelm small firms with questionnaires they cannot answer. The ‘if applicable’ principle keeps reporting realistic for SMEs while still giving larger partners the insights they need.
Read more: Why scope 3 emissions are your biggest blind spot—and what to do about it
How to adopt VSME reporting: A practical roadmap
For SMEs, the big question is not why to use the VSME Standard, but how to start. The good news is that adoption doesn’t require a compliance department or expensive consultants. It’s about following a simple, structured process that fits the reality of smaller businesses.
Here’s a practical roadmap on how to adopt VSME reporting:
- Build understanding
Train your team on what VSME is and what it covers. Even a short internal session can help staff understand that this is about transparency and opportunity, not bureaucracy.
- Map your existing data
Look at what you already track: emissions, energy use, employee numbers, health & safety practices, or existing certifications. Many SMEs will find they already have a lot of the information needed for a VSME simplified ESG reporting for small businesses EU approach.
Read more: Sustainability simplified: Carbon footprinting for beginners
- Identify what’s applicable
Apply the ‘if applicable’ principle to decide which disclosures are relevant to your business. A professional services firm, for instance, may have no emissions-heavy processes but can still report on workforce and governance.
- Choose your level
Decide whether to stick to the Basic Module (11 disclosures) or go further with the Comprehensive Module (adding 9 more). The first covers essential ESG information, while the second positions your company as more advanced in sustainability reporting.
- Create your report
Draft a concise VSME report that can be shared with banks, clients, and partners. Keep it clear, consistent, and aligned with the framework so it’s instantly recognisable as a credible disclosure.
- Use data to guide action
Don’t stop at reporting. Translate your findings into business improvements—set reduction targets where relevant, adjust internal policies, and align reporting with your broader strategy. This is where tools like DGB’s CO₂ Expert Tool can make a real difference. By measuring your company’s carbon footprint in detail, the tool helps you not only fill in the right parts of your VSME report but also identify where you can improve and showcase tangible progress. It ensures that your disclosures aren’t just numbers on a page but the starting point of a sustainability journey that resonates with banks, investors, and clients alike.
From reporting to real impact: Why partner with DGB
Adopting the VSME Standard is a smart first step. It gives SMEs a clear, credible way to respond to growing demands for sustainability disclosure and to position themselves competitively in the market. But reporting alone does not create change—what matters is how businesses use those disclosures to take action, reduce impact, and build long-term value.
Woman working with DGB’s CO₂ Expert tool.
This is where DGB Group stands apart. As a leader in nature-based solutions, we help companies of every size—from local enterprises to global players—go beyond compliance and translate reporting into restoration. With our expertise, your sustainability data becomes more than a set of figures; it becomes a roadmap to protect ecosystems, enhance biodiversity, and strengthen communities.
Our CO₂ Expert Tool makes it easy to take the first step, giving your business the insights it needs to set goals, track progress, and showcase responsibility with confidence. Whether you are a five-person micro-enterprise or a multinational with complex supply chains, DGB provides the tools, projects, and partnerships to ensure your reporting reflects real, positive, and measurable environmental impact.
DGB’s CO₂ Expert tool.
For every business serious about its role in shaping a more sustainable future, DGB is the partner that bridges disclosure and action, data and nature, ambition and credibility.
