VSME: Out of the Shadows into the Spotlight

Following the release of the EU Omnibus package: the Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) could become the decisive sustainability guideline for companies in Europe.

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In December last year, the European Financial Reporting Advisory Group (EFRAG) published a voluntary sustainability reporting standard for non-listed small and medium-sized enterprises (SMEs). In view of the current confusing situation regarding the further development of the CSRD and EU taxonomy rules, the new “Voluntary Sustainability Reporting Standard for non-listed SMEs” could now play a key role. The VSME offers small and medium-sized enterprises, in particular, a practical approach to meeting the diverse requirements of corporate sustainability management while avoiding unnecessary bureaucratic hurdles, says our climate blogger, Hannah Graf-Edinger from the First Climate Consulting team. 

The EU Commission's latest proposals to reform mandatory corporate sustainability reporting as part of the so-called EU Omnibus package leave many question marks for affected companies. It is currently unclear how the application of the rules relating to the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), the EU Taxonomy Regulation and the Carbon Border Adjustment Mechanism (CBAM) will actually proceed (read our article on this topic). In view of a potentially lengthy procedure, it is to be expected that the period of uncertainty could last even longer. 

Overall, the proposals in the EU omnibus package have met with both approval and concern from the business community. Reactions ranged from welcoming the proposals as a necessary contribution to reducing bureaucracy to criticism that implementing the proposals would be tantamount to discarding all ambitious sustainability goals. For many companies, the question arises as to how they should position themselves in light of the current debate and what specific action they should take.

The VSME: Guidelines for voluntary sustainability reporting

The majority of companies agree that it is important to continue investing in the sustainability of their own business model, even without a direct legal obligation, and to document both progress and challenges along the way. But how and on what basis?

For companies that are asking themselves these questions in the current situation, it could be worth looking into VSME now. Originally developed and proposed by EFRAG as a voluntary sustainability reporting standard for non-listed SMEs, VSME was designed to help them present their sustainability performance transparently and meet the growing demands of business partners, investors, and other stakeholders. It offers a standardized framework to reduce the large number of different inquiries on sustainability issues and minimize the bureaucratic burden for SMEs.

Two models, one common goal

The standard is divided into two modules:

• Basic module: 

  This module contains guidelines for reporting to meet basic requirements and is suitable for all non-listed SMEs. It enables simple and efficient reporting on key sustainability issues.

• Comprehensive module: 

  This module builds on the basic module and is aimed at companies that want to provide more detailed information or have to meet specific stakeholder requirements.

Protecting your Business and Supply Chains:

The “Shield Mechanism” of the VSME offers more freedom for sustainability reporting

The VSME was developed in connection with the CSRD to create consistency in sustainability reporting for SMEs not directly affected by the CSRD and helps align it with uniform standards. The background: non-capital-market-oriented micro, small and medium-sized enterprises, which are not themselves covered by the legal obligation to prepare a sustainability report, were and are nevertheless frequently confronted in practice, with corresponding requirements from their customers and business partners (more on this topic here): Large companies that are fully subject to ESG reporting requirements demand that their suppliers collect and provide relevant data. In practice, this means that sustainability requirements are often shifted from one level of the supply chain to another. This is referred to as a trickle-down effect.

The reliability and predictability of ESG reporting

Under the current EU Omnibus proposal, large companies will no longer be allowed to regularly request sustainability data from their supply chain partners if the requests exceed the scope of the VSME standards. Companies that report in accordance with the VSME would thus have a type of "VSME shield".

This VSME Shield would:

• Help SMEs fulfill information requirements in a pragmatic way

• Not require direct proof of full ESRS compliance

• Creates a kind of “transition zone” for SMEs in which they can adapt to possible future regulatory requirements without immediate pressure

• Eases the way for companies to adapt their reporting to another standard at a later date, should this become necessary.

  
  

Ultimately, the VSME standard offers an attractive opportunity for many SMEs to position themselves efficiently and become more resilient to future changes during this current phase of strategic uncertainty. Ready to shield your business from the Omnibus fallout, learn more about the current developments surrounding the EU sustainability regulations, and the options that the VSME standard offers your company? Contact us and schedule a non-binding consultation. We look forward to hearing from you!

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Sustainability Reporting According to VSME: Strong Reasons for SMEs to Communicate Transparently

1.     Competitive Advantage & Market Demands

• Customers, investors, and business partners are placing increasing importance on sustainability criteria. Companies that communicate their efforts through non-financial reporting can position themselves as responsible market players and strengthen their competitive edge.

• Banks and investors are increasingly integrating ESG (Environmental, Social, and Governance) criteria into their decision-making processes. Voluntary sustainability reporting based on the VSME standard can help businesses secure better financing terms or attract investment.

• Larger companies subject to the CSRD (Corporate Sustainability Reporting Directive) often require sustainability information from their suppliers. Responding swiftly enables SMEs to safeguard long-term business relationships.

2.     Risk Management & Future-Readiness

3.     Efficiency Gains & Cost Savings

4.     Brand Image & Customer Loyalty

5. Potential Future Regulations

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About the Author

Hannah Graf-Edinger is a corporate climate strategy consultant specializing in carbon accounting and sustainability reporting. With a background in environmental and energy law, she excels at applying national and international legislation and analyzing complex issues in a structured manner. Before joining First Climate in 2023, she worked as a research associate on various environmental and climate law research projects.