The final version of the Voluntary Standard for non-listed Small and Medium Enterprises (VSME)
On December 17, 2024, EFRAG published the final VSME (Voluntary Standard for SMEs) to the European Commission. This marks the conclusion of an extensive consultation process that took place.
The aim of this voluntary standard is to provide critical support to micro, small and medium-sized businesses in various dimensions. Primarily, it seeks to enable these businesses to contribute meaningfully to a more sustainable and inclusive economy by strengthening their capacity to address sustainability challenges, including environmental considerations and social responsibilities such as ensuring the health and safety of their employees. It also aims to provide the necessary information to meet the data requirements of lenders, investors and larger companies seeking sustainability information from their suppliers, thereby facilitating their access to finance.
This standard operates on a voluntary basis and extends its scope to companies that are not listed on regulated markets within the European Union. It includes micro, small and medium-sized enterprises based on specific financial thresholds.
The threshold are as follows:
- An undertaking is micro if it does not exceed two of the following thresholds:
- €450,000 in balance sheet total;
- €900,000 in net turnover, and
- an average of 10 employees.
- An undertaking is small if it does not exceed two of the following thresholds:
- €5 million in balance sheet total;
- €10 million in net turnover; and
- an average of 50 employees.
- An undertaking is medium if it does not exceed two of the following thresholds:
- €25 million in balance sheet total;
- €50 million in net turnover, and
- an average of 250 employees.
Although these companies are outside the scope of the Corporate Social Reporting Directive (CSRD), they are encouraged to adopt this sustainability reporting standard. Aligned with the European Sustainability Reporting Standards (ESRS), which are tailored for larger companies, this standard considers the specific characteristics and needs of smaller companies. While not legally mandated, this Standard provides a voluntary framework for sustainability reporting that aims to increase transparency and accountability among smaller companies.
Changes in the VSME Standard: A Simplified Structure and Key Updates
Since the release of the first Exposure Draft in January 2024 of the voluntary standard for non-listed micro-, small-, and medium-sized enterprises (VSME), the standard has undergone significant changes in both structure and content. The most notable of these changes is the restructured framework.
The January 2024 Exposure Draft initially included three modules:
- Basic Module
- Policies, Actions, and Targets (PAT) Module
- Business Partner Module
In the final version, published in December 2024, the standard was streamlined into just two modules:
- Basic Module (which remains the foundation for reporting)
- Comprehensive Module (which builds on the Basic Module)
The Basic Module is a prerequisite for the application of the Comprehensive Module, and together, they address the key sustainability reporting needs for business partners such as banks, investors, and large corporations.
Key Differences Between the Draft and the Final Standard
Several key differences can be noted between the first exposure draft and the final version:
- Financial thresholds for micro-, small-, and medium-sized undertakings have been slightly adjusted.
- The final standards provide clearer definitions and more structured methods for reporting on key sustainability metrics.
- One of the most notable changes is the removal of the materiality analysis requirement, which was previously part of the PAT Module.
- Governance disclosures now have a stronger emphasis, reflecting the increasing importance of transparency in corporate governance practices.
Overall, the final version of the VSME standard is simplified compared to the initial draft, making it easier for businesses of varying sizes to engage with and meet sustainability reporting requirements. The focus has shifted toward clearer definitions, better structure, and more direct applicability for business partners.
The final VSME standard – a brief overview
As outlined, the final VSME standards consist of two modules, which are explained in more detail below.
The Basic Module is the cornerstone of sustainability reporting and covers disclosures B1 to B11. It includes disclosures on general company information (B1) such as legal form, NACE codes, turnover, etc., followed by practices, policies, actions and targets (B2). This concept is similar to the structure used in the CSRD, namely PAT. This stands for Policies, Actions and Targets. The Basic Module then goes on to cover key metrics used in environmental (B3 – B7), social (B8 – B10) and governance (B11) issues. Examples include energy and greenhouse gas emissions, health and safety metrics, and bribery and corruption metrics.
- General Company Information (B1)
- Covers essential details such as legal form, NACE codes, and turnover
- Provides context for understanding the company’s operations and scale
- Sustainability Practices, Policies, Actions, and Targets (B2)
- Aligns with the CSRD’s PAT (Policies, Actions, and Targets) structure
- Offers an overview of the company’s approach to sustainability
- Environmental Metrics (B3 – B7)
- Focuses on crucial environmental impacts
- Includes metrics on energy consumption and greenhouse gas emissions
- Social Metrics (B8 – B10)
- Addresses key social responsibility areas
- Covers important aspects like employee health and safety
- Governance Metrics (B11)
- Tackles essential business conduct issues
- Includes reporting on matters such as bribery and corruption
This structured approach ensures that SMEs can report on their sustainability efforts in a clear, concise, and standardized manner. By covering these fundamental aspects, the Basic Module enables companies to demonstrate their commitment to responsible business practices across environmental, social, and governance domains.
The Comprehensive Module, formerly known as the Business Partner (BP) module, builds on the Basic Module and provides additional data points commonly requested by business partners. The Comprehensive Module builds on the Basic Module and provides a more detailed approach to sustainability reporting, covering disclosures from C1 to C9. It’s designed for larger SMEs or those with more advanced sustainability practices. The following is a list of disclosures from C1 to C9 that should be considered and reported if applicable to the organisation’s business and organisation. When one of these disclosures is omitted, it is assumed to not be applicable.
1. Strategy and Business Model (C1-C2)
- Requires disclosure of key business model elements, including products/services, markets, and business relationships
- Asks for description of sustainability-related initiatives and transition plans towards a more sustainable economy
2. Environmental Metrics
- GHG Emissions (C3): Encourages reporting on Scope 3 emissions if relevant
- Climate Targets and Transition (C3): Requires disclosure of GHG reduction targets and transition plans, especially for high-impact sectors
- Climate Risks (C4): Asks for identification and assessment of climate-related hazards and transition events
3. Social Metrics
- Workforce Characteristics (C5-C6):
- Gender ratio at management level (for companies with 50+ employees)
- Information on self-employed and temporary workers
- Human Rights (C6-C7):
- Disclosure of human rights policies and complaint mechanisms
- Reporting on severe negative human rights incidents
4. Governance Metrics
- Sector-Specific Revenues (C8): Requires disclosure of revenues from controversial sectors (e.g., weapons, tobacco, fossil fuels)
- Gender Diversity (C9): Asks for gender diversity ratio in the governance body
This module provides a comprehensive framework for SMEs to report on their sustainability efforts, addressing the information needs of investors, banks, and corporate clients
Key Differences Between the Basic and Comprehensive Modules
The Basic Module and Comprehensive Module differ significantly in terms of depth and reporting scope.
The Basic Module (B1-B11) focuses on core sustainability aspects that are relevant for all SMEs. It provides a streamlined approach to reporting essential environmental, social, and governance (ESG) factors, making it suitable for businesses at all stages of sustainability maturity.
In contrast, the Comprehensive Module (C1-C9) offers a more in-depth and detailed framework, designed for larger SMEs or those with more advanced sustainability practices. Key enhancements include:
- Strategy and Business Model: Additional disclosures on the company’s sustainability strategy, business model, and sustainability initiatives (C1-C2).
- Environmental Metrics: More comprehensive environmental reporting, including Scope 3 emissions and climate-related risks (C3-C4).
- Social Metrics: Expanded social disclosures, including human rights policies and measures for addressing severe human rights incidents (C5-C7).
- Governance: Specific governance-related disclosures, such as revenues from controversial sectors and gender diversity in governance bodies (C8-C9).
The Comprehensive Module’s enhanced reporting framework is aimed at fulfilling the more complex information needs of business partners, investors, and other stakeholders, who require detailed insights into a company’s sustainability practices and governance structures.
Conclusion
In summary, these two modules provide a structured approach to sustainability reporting that addresses the diverse needs of organisations and their stakeholders. By following these modules, organisations can increase transparency, demonstrate their commitment to sustainability and ultimately drive positive social and environmental impacts.
To facilitate implementation, EFRAG plans to provide explanations, training materials, and practical tools. These are intended to support SMEs in applying the standard and ease their entry into sustainability reporting. The further development and acceptance of the standard in practice remains an exciting topic for SMEs and sustainability experts.
*The content of this blog post is based on the final standard for non-listed small and medium-sized undertakings (VSME ED) published by EFRAG on December 24th, 2024.
For more information, visit www.dfge.de or contact us via mail or phone +49 8192 99 7 33-20. Together we can assess which elements of the report we can help you with, from identifying material topics, to filling in the gaps, to preparing a technical report for a round sustainability reporting.
3.Sources:
https://www.efrag.org/en/projects/voluntary-reporting-standard-for-smes-vsme/concluded
