VSME: From voluntary standard to economic advantage

A new strategic tool

Sustainability is increasingly becoming a decisive factor in awarding contracts, securing financing and accessing markets – even in the absence of a legal obligation.

Many small and medium-sized enterprises aim to make their sustainability performance more transparent, but often do not know where to start. The voluntary VSME standard offers a practical entry point into structured ESG reporting without adding unnecessary complexity.

Many SMEs still assume that sustainability reporting is not relevant for them as long as there is no legal requirement. Formally, this is often correct. From an economic perspective, however, this view is becoming increasingly insufficient.

What was once considered voluntary now often determines who is awarded contracts and receives financing. Companies are increasingly losing business due to ESG requirements – often without being immediately aware of it. Tenders, supply chain requirements and financing processes now include implicit sustainability criteria that function less as reporting obligations and more as prerequisites for market access. Against this backdrop, the VSME (Voluntary Sustainability Reporting Standard for SMEs) is gaining significant importance.

What is the VSME?

The VSME is a voluntary sustainability reporting standard for small and medium-sized enterprises that are not subject to the Corporate Sustainability Reporting Directive (CSRD). It was developed by the European Financial Reporting Advisory Group (EFRAG) on behalf of the European Commission. The corresponding draft was submitted to the Commission in December 2024.

The aim of this currently voluntary standard is to provide SMEs with a consistent and practical framework for capturing and presenting sustainability information – without the complexity of the ESRS standards. It enables companies that are not subject to reporting obligations to respond to requests from financial institutions, large corporates and other stakeholders in a structured manner.

With the draft Omnibus Regulation published in February 2025, the European Commission has significantly increased the relevance of the VSME. It is now intended to apply to all companies with fewer than 1,000 employees that are expected to fall outside the scope of CSRD reporting requirements in the future. At the same time, the VSME is designed to act as a cap on information requests: companies subject to CSRD should only be allowed to request sustainability information from non-reporting SMEs to the extent covered by the VSME.

In July 2025, the European Commission officially recommended the VSME for SMEs. As a result, the VSME is effectively becoming the reference framework for the mid-market.

Structure of the standard

The VSME standard is deliberately designed to be pragmatic. It consists of a basic module with 51 data points across eleven topic areas, as well as an optional comprehensive module with a further 42 data points across nine additional areas. The basic module forms the core of every VSME report and covers key environmental, social and governance aspects in a structured format. The comprehensive module is aimed at companies seeking to provide greater transparency to banks, investors or business partners.

The standard follows a clear principle of proportionality. In addition to mandatory disclosures, it includes numerous “if applicable” data points that only need to be reported if they are relevant to the respective company. This avoids unnecessary data collection and reporting.

Using only the basic module is generally recommended only for micro-enterprises with fewer than ten employees. For all other companies, the modular structure allows the scope and depth of reporting to be tailored to their specific situation.

With a total of 93 potential data points, the VSME remains manageable and practical. By comparison, CSRD reporting under the European Sustainability Reporting Standards comprises around 1,100 data points – illustrating the significantly greater scope, complexity and administrative effort associated with full reporting obligations.

Why ESG is now an economic issue

Today, ESG does not operate through ideology, but through decisions:

• Customers decide on suppliers
• Banks decide on financing conditions
• Investors decide on access to capital

For many companies, sustainability has therefore become a key factor for revenue, financing and market access.

Which companies benefit from the VSME?

Many SMEs currently work with Excel spreadsheets, PDF documents and fragmented input from advisers. This leads to a lack of structure and often creates dependency on individual persons. A structured VSME report, by contrast, brings clarity back into the organisation. It establishes a systematic foundation that allows sustainability aspects to be managed proactively, rather than addressed only in response to external requests.

Voluntary reporting under the VSME is particularly relevant for:

• Suppliers to companies subject to CSRD
  Individual ESG questionnaires can be replaced by a standardised report. This reduces administrative effort, creates clarity and strengthens trust.
• Companies with strong banking relationships
  Banks are increasingly integrating ESG risks into their lending decisions. A structured VSME report can accelerate processes and reduce uncertainty.
• Companies undergoing transformation
  In investment decisions, succession processes or transactions, the future viability of the business model is increasingly scrutinised.
• Companies with a strategic outlook
  Early engagement with sustainability creates room for manoeuvre in a changing regulatory environment.

A solid data foundation as a prerequisite for financing

The structured preparation of ESG data is becoming increasingly important, particularly in a financing context. Banks and investors are required by regulation to systematically incorporate sustainability risks into their lending and investment decisions. This requires reliable and comparable information.

Where structured data is lacking, review processes become longer. Follow-up questions arise, responses are inconsistent, and interpretation becomes more subjective on the part of capital providers. In practice, this can result in financing processes being delayed, becoming more complex or leading to higher risk premiums.

A VSME-based report creates a consistent and transparent foundation. It consolidates relevant information, reduces follow-up questions and strengthens the company’s position in negotiations. Sustainability thus becomes not an additional source of uncertainty, but a structured component of economic argumentation vis-à-vis banks and investors.

Sustainability pays off: transparency creates economic leverage

A structured VSME report does not only have an external impact vis-à-vis banks or business partners – it often creates internal value as well. The systematic collection of data on energy consumption, procurement structures, resource use and supply chain dependencies frequently provides companies with a level of transparency they have not previously had.

This often reveals inefficiencies that were previously hidden in day-to-day operations: oversized processes, unnecessary material consumption, suboptimal procurement structures or energy-intensive workflows without strategic oversight. A structured perspective makes it possible not only to identify savings potential, but also to quantify it and incorporate it into investment decisions.

For many companies, engaging with the VSME is therefore less a reporting exercise and more a trigger for economic analysis. Sustainability data becomes a management tool. The result is often tangible cost effects, improved processes and stronger strategic alignment.

Why the VSME is a pragmatic starting point

For many SMEs today, the key question is no longer whether sustainability reporting is legally required, but where a structured and proportionate entry point can be found. This is precisely where the VSME comes in.

The standard creates consistent data requirements and reduces uncertainty about which information is actually relevant. Instead of responding to individual questionnaires from different business partners, it provides a clearly defined framework focused on what truly matters.

At the same time, the entry threshold remains low. Thanks to its modular structure, the scope of reporting can be adapted to the size, complexity and market requirements of each company. The VSME is therefore flexible and scalable: it can be used as a baseline model and expanded where necessary.

Another important aspect is credibility. A structured and recognised standard builds trust among banks, investors and business partners. It signals that sustainability is not addressed selectively, but systematically. In a dynamic regulatory environment, this also contributes to a degree of future readiness. Companies that adopt a structured approach early are better prepared should requirements continue to increase.

The KHS perspective

From our advisory perspective, the VSME is not a new reporting obligation, but a pragmatic tool for creating structure where there is a genuine economic need to act. For many SMEs, the key question is not formal compliance, but business relevance: does it make sense to systematically capture key ESG topics in order to facilitate financing discussions, meet market expectations or support more informed strategic decisions?

The answer always depends on the specific situation. In our advisory work, we typically assess:

• Are there significant supply chain relationships with companies subject to reporting obligations?
• Are major financing or refinancing measures planned?
• Is the company undergoing a strategic transformation?
• Is a transaction or business valuation planned in the medium term?

In such situations, a structured ESG approach based on the VSME can be economically beneficial. It creates transparency around relevant risks and opportunities, strengthens internal management capabilities and improves the basis for discussions with capital providers and business partners.

Not as a formal exercise for its own sake, but as a strategic instrument to strengthen the company’s position and future viability.