The Carbon Border Adjustment Mechanism (CBAM)
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In this article we’ll explore what the CBAM is, why it’s been created, and what importers need to know ahead of its introduction.
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Our guide to the VSME Standard (EFRAG)
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For many small and medium-sized enterprises (SMEs), sustainability reporting has become an unavoidable challenge. Banks, investors, and large corporate clients are increasingly asking SMEs to disclose environmental, social, and governance (ESG) data - but without a standardized framework, businesses often find themselves drowning in a sea of complex, uncoordinated requests.
This puts companies in a difficult position. Unlike large corporations, they might not have dedicated sustainability teams or the resources to produce tailored ESG reports for every request they receive. Instead, many are left struggling to respond to different questionnaires, often spending valuable time and money just to meet the expectations of stakeholders.
Recognizing this burden, the European Commission tasked the European Financial Reporting Advisory Group (EFRAG) with developing a voluntary reporting framework specifically for non-listed SMEs. The result? The Voluntary Sustainability Reporting Standard for SMEs (VSME) - a simplified, proportionate reporting tool designed to streamline ESG disclosures and improve SMEs’ access to financing and business opportunities.
But what exactly does this new standard cover, and how can SMEs use it to their advantage? In this article, we’ll break down the VSME, explain its key features, and explore what it means for SMEs looking to align with growing sustainability expectations.
What is the VSME?
“ The Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) is exactly what it sounds like - a voluntary framework designed to help non-listed small and medium-sized enterprises (SMEs) report on sustainability issues in a standardized and efficient way. ”
The European Financial Reporting Advisory Group (EFRAG) developed the VSME at the request of the European Commission, responding to the growing demand for ESG data from SMEs. While larger companies and financial institutions already follow strict sustainability reporting requirements under the Corporate Sustainability Reporting Directive (CSRD), non-listed SMEs are not legally required to disclose ESG information. However, in practice, many SMEs are expected to provide sustainability data to meet the demands of their clients, investors, and banks.
The VSME aims to simplify this process by offering a structured but flexible reporting framework. Instead of SMEs having to complete multiple, uncoordinated ESG questionnaires, the VSME provides a single standard that stakeholders can use to assess sustainability performance.
Although originally developed for non-listed SMEs, the VSME is not limited to small businesses - it applies to companies with up to just under 1,000 employees. This broader scope ensures that more businesses can benefit from a harmonised ESG reporting system that reduces complexity and aligns with market expectations.
How the VSME differs from the CSRD
While the CSRD mandates ESG reporting for large companies and listed SMEs, the VSME is entirely voluntary. It is also:
- Simpler and more proportionate: The VSME is tailored to the needs and capabilities of small and medium-sized businesses, stripping away unnecessary complexity.
- Flexible: Companies can choose between a Basic and a Comprehensive reporting module depending on their needs.
“ In short, the VSME is not a regulatory requirement - but it is a strategic opportunity. For SMEs looking to stay competitive, attract financing, and future-proof their business, adopting the VSME could be a smart move. ”
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Why was the VSME introduced?
For many companies, sustainability reporting is becoming an unavoidable part of doing business. Whether applying for loans, securing investment, or maintaining supplier contracts with larger companies, SMEs are increasingly expected to provide environmental, social, and governance data.
“ The problem? There’s no single, standardized way for SMEs to report on sustainability. Instead, many businesses receive multiple ESG data requests from banks, investors, and corporate clients, each with different formats, questions, and expectations. ”
This creates three major challenges for companies:
- Time and resource burden: Small and medium-sized businesses often lack the expertise and staff to produce sustainability reports, let alone customize them for different stakeholders.
- High costs: Gathering data, responding to requests, and potentially hiring consultants all come with a price tag.
- Risk of lost opportunities: Without an easy way to provide ESG information, businesses may struggle to access green financing, secure contracts with larger companies, or attract sustainability-focused investors.
The European Commission’s response: The SME Relief Package
Recognizing these challenges, the European Commission included the VSME as part of its SME Relief Package, published in September 2023. The goal? To provide a simple, standardized sustainability reporting framework for non-listed SMEs.
The European Financial Reporting Advisory Group (EFRAG) was then tasked with developing the VSME standard, which was delivered to the Commission on December 17, 2024.
What the VSME aims to solve
By introducing a voluntary but standardized ESG reporting tool, the VSME is expected to:
- Reduce the reporting burden: One framework instead of multiple ad-hoc data requests.
- Make SMEs more attractive to investors and lenders: A clear ESG report can improve financing opportunities.
- Help companies integrate sustainability into their business strategies: Simplified reporting encourages more businesses to track their sustainability efforts.
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Structure of the VSME: Two reporting modules
The Voluntary Sustainability Reporting Standard for SMEs (VSME) follows a modular structure, allowing businesses to choose between:
- Basic Module: Covers 11 key disclosures and serves as the minimum reporting level for all SMEs.
- Comprehensive Module: An optional extension with 9 additional disclosures for SMEs that want to report more detailed ESG information.
This approach ensures that even the smallest businesses can engage in sustainability reporting without being overwhelmed by unnecessary complexity.
1. The Basic Module: Essential ESG disclosures
The Basic Module is the starting point for all companies adopting the VSME. It includes 11 key disclosures across environmental, social, and governance (ESG) topics:
| Category | Disclosures | Description |
|---|---|---|
| General Information | 1. Basis for preparation | States the reporting framework chosen (Basic or Comprehensive Module) and general company details (legal form, turnover, employee count, etc.). |
| 2. Practices, policies, and future initiatives for sustainability | Describes the SME’s sustainability-related policies and any planned improvements. | |
| Environmental Metrics | 3. Energy and greenhouse gas emissions | Reports total energy consumption and direct (Scope 1) and indirect (Scope 2) GHG emissions. |
| 4. Pollution of air, water, and soil | Discloses pollutants emitted to the environment if required by regulations or voluntary reporting systems. | |
| 5. Biodiversity | Reports whether business sites are located in or near biodiversity-sensitive areas. | |
| 6. Water | Reports water consumption and withdrawals, especially in water-stressed regions. | |
| 7. Resource use, circular economy, and waste management | Reports on waste generation, recycling efforts, and circular economy initiatives. | |
| Social Metrics | 8. Workforce – General characteristics | Provides employee data, including full-time/part-time breakdown and gender distribution. |
| 9. Workforce – Health and safety | Reports workplace incidents, including work-related injuries and fatalities. | |
| 10. Workforce – Remuneration, collective bargaining, and training | Discloses minimum wage compliance, pay gap, union representation, and employee training hours. | |
| Governance Metrics | 11. Convictions and fines for corruption and bribery | Reports any corruption-related convictions and financial penalties. |
The Basic Module provides a streamlined, practical approach to ESG reporting while ensuring that companies can easily share relevant sustainability data with investors, lenders, and business partners.
2. The Comprehensive Module: Additional ESG disclosures
For companies that want to enhance their sustainability reporting, the Comprehensive Module adds 9 more disclosures to the Basic Module. These disclosures are particularly useful for businesses seeking green financing, partnerships with sustainability-driven corporations, or alignment with investor expectations.
| Category | Disclosures | Description |
|---|---|---|
| General Information | 1. Strategy: Business Model and Sustainability – Related Initiatives | SMEs must disclose their business model and any key sustainability initiatives that are part of their strategy. |
| 2. Description of practices, policies and future initiatives for transitioning towards a more sustainable economy | Businesses must describe their sustainability-related policies and planned sustainability improvements. | |
| Environmental Metrics | 3. GHG reduction targets and climate transition | SMEs must disclose any specific targets for reducing greenhouse gas emissions and their strategy for transitioning towards a low-carbon business model. |
| 4. Climate risks | SMEs must assess and report their exposure to climate-related risks, including physical risks (e.g., extreme weather events) and transition risks (e.g., regulatory changes). | |
| Social Metrics | 5. Additional workforce characteristics | Further workforce details beyond the Basic Module, including employment type and breakdowns by contract type and region. |
| 6. Additional own workforce information - Human rights policies and processes | Disclosure of company policies related to human rights, including labor rights protections, non-discrimination measures, and grievance mechanisms. | |
| 7. Severe negative human rights incidents | SMEs must report any confirmed incidents of severe human rights violations, such as forced labor, child labor, or other serious breaches. | |
| Governance Metrics | 8. Revenues from certain sectors and exclusion from EU reference benchmarks | SMEs must disclose revenue from sectors such as fossil fuels, tobacco, or other industries considered high-impact. They must also report whether they are excluded from EU sustainability reference benchmarks. |
| 9. Gender diversity ratio in the governance body | SMEs must disclose the gender composition of their governance bodies, including senior leadership and board-level representation. |
3. Choosing the right module: What companies need to consider
| If an SME wants to… | Recommended Module |
|---|---|
| Meet basic ESG expectations | Basic Module |
| Simplify sustainability reporting for clients and lenders | Basic Module |
| Secure investment from sustainability-focused investors | Comprehensive Module (in addition to the Basic Module) |
| Position itself as a sustainability leader | Comprehensive Module (in addition to the Basic Module) |
Important: The Comprehensive Module cannot be used on its own - a business must first complete the Basic Module before adding the additional disclosures.
This modular approach ensures that companies can scale their sustainability reporting efforts depending on their business needs and stakeholder expectations.
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Key features and simplifications
One of the main goals of the Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) is to make ESG reporting as straightforward and accessible as possible. Unlike complex reporting frameworks designed for large corporations, the VSME introduces several key features that simplify the process for companies while still ensuring high-quality sustainability disclosures.
1. No materiality assessment required
In traditional ESG reporting frameworks, companies are often required to conduct a materiality assessment to determine which sustainability topics are relevant to their business. The CSRD for example requires that companies conduct a double materiality assessment. This process can be time-consuming and resource-intensive, especially for SMEs that often lack dedicated sustainability teams.
The VSME eliminates this burden by adopting an “if applicable” principle - meaning that companies only need to report on topics that are relevant to their business. If a specific disclosure does not apply to a company, there is no requirement to report on it.
2. Simplified language and reporting process
Many sustainability reporting standards use highly technical language and complex reporting structures, making it difficult for SMEs to comply. The VSME has been designed with:
- Clear and simple terminology: Avoids jargon-heavy wording to make it easy to understand.
- Predefined reporting templates: Standardised formats for disclosures help companies provide information in a structured and efficient way.
- Checklists instead of lengthy narratives: Where possible, disclosures are structured as multiple-choice or quantitative data points rather than requiring detailed written explanations.
3. Modular approach to data collection
As we’ve already discussed the VSME’s two-module system (Basic and Comprehensive) ensures that businesses can choose the level of detail they report based on their specific needs.
- Basic Module: Provides a lightweight reporting framework with only 11 disclosures, focusing on essential ESG topics.
- Comprehensive Module: Adds 9 additional disclosures for companies that need to report in greater detail.
This flexibility ensures that companies are not overwhelmed by unnecessary reporting requirements while still providing useful sustainability data to stakeholders.
4. No mandatory public disclosure
Unlike mandatory reporting frameworks, the VSME does not require businesses to publicly disclose their sustainability data. The primary purpose of the VSME is to facilitate ESG data sharing between companies and their business partners (such as banks, investors, and large companies).
SMEs can choose to:
- Share their VSME report only with specific stakeholders (eg. lenders or suppliers).
- Keep certain disclosures private if they contain sensitive business information.
- Gradually expand their disclosures over time as they build ESG capabilities.
“ By reducing complexity, lowering costs, and protecting confidentiality, the VSME makes ESG reporting more accessible for SMEs and other companies, allowing them to participate in the sustainable economy without excessive administrative burden. ”
How the VSME benefits companies
“ For many companies, sustainability reporting has been a costly and time-consuming challenge, with multiple stakeholders requesting ESG data in different formats. The Voluntary Sustainability Reporting Standard for SMEs (VSME) aims to simplify this process while offering strategic advantages for businesses that adopt it. ”
1. Reducing ESG reporting burden
Many companies face overlapping and uncoordinated ESG data requests from banks, investors, and corporate clients. The VSME provides a single, standardized framework, helping businesses:
- Avoid the inefficiency of responding to multiple ESG questionnaires.
- Reduce administrative costs and time spent on sustainability reporting.
- Provide a structured ESG report that meets most stakeholder expectations.
2. Improving access to financing
Businesses that can demonstrate sustainability commitments are more attractive to banks, investors, and funding programs. The VSME can help businesses:
- Strengthen loan applications by providing structured ESG data.
- Attract sustainability-focused investors.
- Access green finance opportunities more easily.
3. Strengthening business relationships
Many large companies now require sustainability data from suppliers as part of their own ESG reporting. By adopting the VSME, companies can:
- Meet supply chain sustainability requirements.
- Reduce the risk of losing contracts due to lack of ESG data.
- Build trust with corporate clients and business partners.
4. Preparing for future regulations
Although the VSME is voluntary, ESG reporting requirements may expand in the future. Using the framework now allows businesses to:
- Stay ahead of potential regulatory changes.
- Develop ESG reporting capabilities before requirements become mandatory.
- Ensure a smoother transition if disclosure rules are extended to smaller businesses.
5. Enhancing market positioning
Sustainability is becoming a key differentiator in many industries. Companies that report ESG data through the VSME can:
- Improve brand reputation by demonstrating sustainability efforts.
- Attract customers and partners who prioritize responsible business practices.
- Stand out from competitors that do not disclose ESG performance.
| Benefit | How the VSME Helps |
|---|---|
| Reduces ESG reporting burden | Provides a single standardized framework, replacing multiple ESG data requests. |
| Improves access to financing | Helps SMEs secure loans, attract investors, and access green funding opportunities. |
| Strengthens business relationships | Ensures SMEs can meet sustainability requirements from banks, investors, and corporate clients. |
| Prepares for future regulations | Positions SMEs ahead of potential ESG reporting requirements. |
| Enhances market positioning | Demonstrates commitment to sustainability, improving trust with customers and partners. |
“ The VSME is a strategic opportunity for SMEs and companies with under 100 employees to simplify ESG reporting, improve business prospects, and future-proof their operations. ”
Next steps: How to get started
For businesses looking to adopt the Voluntary Sustainability Reporting Standard for SMEs (VSME), the process is designed to be flexible and scalable. While the standard is voluntary, using it effectively can help businesses meet stakeholder expectations, improve access to financing, and prepare for future sustainability requirements.
1. Determine whether the VSME is relevant to your business
Before adopting the VSME, companies should assess:
- Are stakeholders (banks, investors, clients) asking for ESG data?
- Does the business already track sustainability metrics?
- Would a standardized framework reduce reporting burdens?
If ESG data requests are becoming more frequent, using the VSME can help provide a structured, widely recognized format that may replace multiple ad-hoc requests.
2. Choose the right reporting level
The VSME allows businesses to start small and expand reporting over time. The Basic Module covers core ESG disclosures and is suitable for companies looking to meet standard stakeholder expectations. The Comprehensive Module adds further disclosures for businesses that need to provide more in-depth ESG data, such as those seeking green financing or positioning themselves as sustainability leaders.
3. Gather the necessary ESG data
Once the module is selected, SMEs should review the required disclosures and begin collecting relevant data.
For SMEs new to ESG reporting, starting with existing business records (eg. energy bills, HR data) can simplify the process.
4. Prepare and share the report
The VSME is designed for internal use and communication with stakeholders rather than mandatory public disclosure. SMEs should:
- Use predefined templates (if available) to structure disclosures.
- Share reports with lenders, investors, and corporate partners as needed.
- Regularly update ESG data to track progress and maintain transparency.
5. Stay informed on ESG trends and expectations
With the growing demand for ESG transparency, the VSME is expected to be widely adopted by financial institutions, investors, and corporate clients. To make the most of the standard, SMEs should:
- Ensure they meet stakeholder expectations by keeping up to date with evolving ESG priorities.
- Refine their reporting approach over time, using industry benchmarks to strengthen disclosures.
- Explore sustainability initiatives or certifications that align with the VSME framework to enhance their credibility.
| Step | Action |
|---|---|
| 1. Assess relevance | Determine if ESG reporting is needed based on stakeholder expectations. |
| 2. Select a module | Choose between the Basic or Comprehensive reporting level. |
| 3. Collect data | Gather required ESG information from existing records. |
| 4. Prepare & share report | Use templates to structure disclosures and communicate with stakeholders. |
| 5. Stay informed | Monitor industry ESG trends to ensure continued alignment. |
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Greenly’s offering for VSME reporting
For businesses adopting the Voluntary Sustainability Reporting Standard for SMEs (VSME), Greenly provides a comprehensive suite of tools, training, and expert guidance to simplify ESG data collection and strategy development. The VSME is designed for non-listed companies, with up to 1,000 employees, helping them build a solid foundation for future ESG reporting.
1. ESG Data Collection & KPI Identification
Greenly streamlines the data collection process, helping businesses focus on the core sustainability metrics required under the VSME. Businesses can:
- Identify key ESG data points relevant to investor and customer expectations.
- Use personalized dashboards to track ESG performance and highlight key areas for improvement.
- Increase their knowledge of ESG data, ensuring a strong foundation for future reporting requirements.
2. Training and Stakeholder Engagement
Building ESG expertise is crucial for long-term success. Greenly provides:
- Comprehensive ESG training programs to help teams understand sustainability metrics and reporting processes.
- Workshops and webinars to educate businesses on ESG best practices.
- Stakeholder identification, helping businesses map out key investors, financial institutions, and corporate clients requesting ESG disclosures.
- Guidance on selecting KPIs, ensuring that companies focus on meaningful sustainability indicators.
3. Business Intelligence for ESG Strategy
Greenly helps companies turn ESG data into a strategic asset, ensuring that VSME implementation strengthens long-term sustainability planning. This includes:
- Identification of data gaps to ensure compliance completeness.
- ESG Data Strategy Roadmap, prioritizing actions to close data gaps efficiently.
4. Sustainability Reporting & Investor Communication
While VSME reporting is voluntary, Greenly makes it easy for businesses to share their ESG progress with key stakeholders:
- Custom sustainability reports that can be shared with investors, clients, and financial institutions.
- Data centralization, ensuring ESG information is organized and accessible for future regulatory needs.
- No data loss - everything reported under the VSME can be repurposed for future ESG reporting frameworks, such as the CSRD, ensuring compliance readiness.
By leveraging Greenly’s platform, businesses can save time, enhance ESG credibility, and build a strong foundation for their long-term sustainability strategy. Get in touch with us today to find out more.
Sources
- Greenly, What is ESG Data and How to Use It, https://greenly.earth/en-gb/blog/company-guide/what-is-esg-data-and-how-to-use-it
- Greenly, What is EFRAG (European Financial Reporting Advisory Group)?, https://greenly.earth/en-gb/blog/company-guide/what-is-efrag-european-financial-reporting-advisory-group
- EFRAG, European Financial Reporting Advisory Group, https://www.efrag.org/en
- EFRAG, VSME Standard, https://www.efrag.org/sites/default/files/sites/webpublishing/SiteAssets/VSME%20Standard.pdf
- Greenly, What is the Corporate Sustainability Reporting Directive (CSRD)?, https://greenly.earth/en-gb/blog/company-guide/what-is-the-corporate-sustainability-reporting-directive-csrd
- EUR-Lex, Directive (EU) 2022/2464 on Corporate Sustainability Reporting, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464
- European Commission, COM(2023) 535 final - Report on the Implementation of the CSRD, https://single-market-economy.ec.europa.eu/document/download/8b64cc33-b9d9-4a73-b470-8fae8a59dba5_en?filename=COM_2023_535_1_EN_ACT_part1_v12.pdf
- Greenly, What is a Materiality Assessment?, https://greenly.earth/en-gb/blog/company-guide/what-is-a-materiality-assessment
- Greenly, Our Guide to the CSRD’s Double Materiality Assessment, https://greenly.earth/en-us/blog/company-guide/our-guide-to-the-csrds-double-materiality-assessment
- Greenly, ESG Investing: Meaning and Trends, https://greenly.earth/en-gb/blog/company-guide/esg-investing-meaning-and-trends
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