European Commission endorses EFRAG’s streamlined VSME standard to support SME ESG compliance and green finance access. ESG BROADCAST shares key takeaways.
Regulatory Extract:
On the heels of the European Commission’s SME Relief Package, the Commission has formally adopted a Recommendation supporting the Voluntary Sustainability Reporting Standard for non-listed Micro-, Small-, and Medium-sized Enterprises (VSME). Developed by the European Financial Reporting Advisory Group (EFRAG) and released in December 2024, the VSME standard offers a simplified framework enabling SMEs with fewer than 250 employees to meet growing sustainability data demands without the burden of full-scale regulatory compliance.
As part of Action 14 of the 2023 SME Relief Package, the VSME standard is designed to help SMEs provide relevant sustainability-related disclosures to large undertakings, investors, and financial institutions. By offering a common data language and reducing the cost of disclosure, the standard also enhances SME competitiveness and access to sustainable finance.
“The Recommendation reflects the VSME standard developed by EFRAG, providing a robust yet flexible framework that is both technically sound and accessible,” noted Patrick de Cambourg, Chair of the EFRAG Sustainability Reporting Board. “It strikes the right balance between market relevance and proportionality.”
The VSME adopts a two-tiered modular approach. The Basic Module, geared toward micro enterprises (under 10 employees), requires only 11 disclosures, covering core ESG indicators such as Scope 1 and 2 GHG emissions, environmental metrics, workforce data, and anti-corruption measures. The Comprehensive Module builds on this foundation with nine additional disclosures that address value chain risks, climate transition planning, and alignment with EU benchmarks.
Notably, the VSME does not mandate a materiality assessment, prioritizing practicality over complexity. It also permits SMEs to apply only the disclosures relevant to their operations—an approach that is expected to increase adoption while ensuring alignment with European Sustainability Reporting Standards (ESRS) and Sustainable Finance Disclosure Regulation (SFDR).
EFRAG has launched a digital toolkit to support adoption, including an Excel-based template, an XBRL taxonomy, and an automated converter for machine-readable reporting. Additional guidance materials are also in development to assist SMEs in setting climate targets and identifying value chain risks, particularly around human rights impacts.
“With this Recommendation, the Commission acknowledges the vital role of SMEs in achieving a sustainable economy,” said Chiara Del Prete, Chair of EFRAG’s Technical Expert Group. “It lays the groundwork for harmonised ESG data requests and more efficient reporting practices across Europe.”
Strategic significance lies in the Commission’s endorsement of a proportionate and voluntary ESG compliance tool that meets market needs while empowering SMEs to participate meaningfully in the sustainable finance ecosystem. For banks, investors, and supply chain partners, the VSME standard offers a consistent reference for evaluating SME ESG performance.
ESG BROADCAST will continue monitoring the updates related to this topic. Stay tuned to be updated on the related policy and pivotal regulatory shift.
