Sustainability is not just for the largest corporations anymore - ESG reporting requirements are spreading to small and medium-sized businesses. The EU's Corporate Sustainability Reporting Directive (CSRD) sets stricter requirements for large companies to document their sustainability efforts, and this affects SMEs. CSRD focuses on the value chain, which means that many SMEs are indirectly required to provide ESG data in order to maintain their attractiveness as suppliers and business partners.
For many SMEs, navigating the complex reporting requirements is a challenge, particularly when resources are limited. This is where VSME (Voluntary Reporting Standards for SMEs) comes in as a tool that makes sustainability reporting more accessible and scalable for smaller businesses.
What is VSME?
VSME is a voluntary sustainability reporting standard specifically designed for small and medium-sized enterprises. It was developed by EFRAG in partnership with experts from the SME sector, sustainability specialists and various business stakeholders as part of a broader initiative to improve sustainability reporting in Europe.
The background for VSME is the growing demand for ESG data from the outside world. While large companies often have the resources to comply with extensive reporting requirements, smaller companies find it more difficult to navigate the complex requirements. The standard has therefore been developed to:
- provide SMEs with a structured tool to document sustainability efforts
- help SMEs improve ESG performance through data collection and analysis
- make it easier for SMEs to adapt to future ESG regulations.
Simply put, VSME is a structured method for reporting on ESG initiatives while being flexible enough to account for the different business models and capabilities of SMEs.
READ ALSO: What is ESG and when will it become a requirement?
What does VSME cover?
VSME focuses on three key areas:
- Environmental: carbon footprint, energy consumption, water consumption, waste management and other environmental metrics
- Social factors: Working conditions, diversity, equality, employee well-being and engagement in the local community
- Governance: Business ethics, structure of the board, risk management and transparency in the company's decision-making processes
The standard is a simplified version of the European Sustainability Reporting Standards (ESRS), which is adjusted to the resources and needs of SMEs. In comparison to CSRD, which requires detailed reporting on a wide range of ESG parameters, VSME gives companies the flexibility to choose the most relevant indicators. This allows SMEs to report meaningful data without going through the resource-intensive processes that larger companies are subject to under CSRD.
Advantages of using VSME
There are several strategic advantages to be gained by implementing VSME in your business. One of the biggest is increased competitiveness. As ESG data becomes a crucial factor in customer and investor decisions, structured and transparent sustainability reporting can help strengthen a company's position in the market.
In addition, VSME can improve access to investments as investors increasingly prioritize companies with a strong ESG profile. The EU's Sustainable Finance Disclosure Regulation (SFDR) in particular plays an important role here. The SFDR requires financial actors to assess and report ESG risks in their investments, which means that banks and investment funds are using ESG criteria as part of their risk assessment. This provides better opportunities for companies that can provide reliable ESG data to attract capital from investors who want to meet the SFDR's requirements for transparency and sustainable investment.
VSME can also strengthen the position of SMEs in the supply chain. Large companies are placing increasing ESG demands on their suppliers to fulfill their own reporting obligations in CSRD. Therefore, for SMEs, having well-documented ESG data can be a crucial factor in retaining and attracting customers. VSME can be a great tool to structure sustainability reporting and meet the demands of stakeholders who expect transparency throughout the supply chain.
To summariz-, VSME provides companies with a valuable tool to create transparency, meet the demands of customers and investors, and position themselves stronger in a market where sustainability plays an increasingly important role.
