EU Commission Adopts VSME Standard for Small Company Sustainability Reporting

The European Commission formally adopted the Voluntary Sustainability Reporting Standard for SMEs, providing micro-, small- and medium-sized companies with a simplified framework to report on ESG issues and respond to data requests from banks and large companies. The standard is now expected to gain relevance far beyond its original SME scope due to the Omnibus initiative's dramatic reduction in mandatory CSRD reporting requirements.

The VSME was developed by EFRAG and contains two modules. The Basic module includes 11 disclosures covering key sustainability indicators most frequently required by value chain partners, including Scope 1 and 2 emissions and anti-corruption information. The Comprehensive module adds 9 further disclosures often requested by banks, investors and value chain partners, including GHG reduction targets, transition plans and ESG practice descriptions. The standard was designed for companies with fewer than 250 employees.

The Omnibus package approved by EU lawmakers raises the CSRD employee threshold from 250 to 1,000 and the revenue threshold to €450 million, removing an estimated 80% of previously covered companies from mandatory sustainability reporting obligations. For these companies, the Omnibus proposes introducing voluntary sustainability reporting requirements based on the VSME, and the VSME will also serve as a value-chain cap limiting the detail of ESG information that banks or large companies can demand from smaller supply chain partners.

The Commission indicated it cannot exclude the possibility that certain changes to the VSME may be needed depending on final agreement on the post-Omnibus CSRD scope and the revised ESRS. For Indian SMEs that are suppliers to large European companies operating under CSRD, the VSME provides a practical reference for the types and format of sustainability information they may be required to disclose to their buyers. The adoption formalises the standard and provides a stable framework for SME reporting ahead of the revised regulatory landscape.

Key figure — 11 Basic module disclosures and 9 Comprehensive module disclosures in the VSME framework