The EU VSME: Voluntary Sustainability Reporting for SMEs

The EU VSME: Voluntary Sustainability Reporting for SMEs 

The sustainability reporting landscape in Europe has undergone a major shift in recent years, changing how organisations perceive and integrate ESG frameworks into their operations. The Voluntary European Sustainability Reporting Standards (VSME) present a promising opportunity for startups and non-listed SMEs to enhance their competitiveness and strengthen the partnerships within the existing value chains while improving readiness for further regulatory transitions, notably into the CSRD. This article provides the latest information about the developing VSME standard and its impact. 

The CSRD, ESRS, VSME: How are they related?  

The VSME is directly related to The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS), which provided the basis for the development of the voluntary standard. Before we move to the specifics, it is worth looking back at where the VSME stands in the context of the new European regulations. 

The CSRD was launched by the European Commission in April 2021 as the foundation of the EU Green Deal and Sustainable Finance Initiative to improve disclosure and address investors' ESG needs. It is a key instrument in achieving a carbon-neutral economy by 2050. 

The European Financial Reporting Advisory Group (EFRAG) has developed ESRS standards for companies in the scope of CSRD regulations. 

There are three sets of standards published in total:

• ESRS - for companies in the scope of the CSRD
• LSME ESRS - for listed SMEs covered by the CSRD
• VSME ESRS - voluntary standard for non-listed SMEs 

After the final draft was approved in January 2024, both LSME and the voluntary standard for non-listed SMEs are open for public consultation until May 21, 2024. Feedback can be provided through an online questionnaire.  

What is the EU VSME regulation for startups and SMEs? 

The VSME is a voluntary reporting standard designed for non-listed SMEs outside the Corporate Sustainability Reporting Directive (CSRD) scope. While the standard, which covers ESG areas similar to those of ESRS for larger enterprises, is optional, organisations are highly encouraged to adopt it. 

The role of the VSME in the European sustainability landscape 

The standard aims to support micro, small, and medium companies in responding efficiently and consciously to requests for sustainability data they receive from investors, financing bodies, partners, and other stakeholders. 

The standardised framework is designed to ensure the quality of disclosure inside the value chain of the companies covered by the CSRD, limiting the risk of overloading SMEs by imposing more complex reporting regulations. Furthermore, compliance with the voluntary standards guarantees to stay in line with European regulations, covering all ESG topics, unlike some of the private scoring methodologies.   

For example, a small producer supplying to a larger manufacturer covered by the CSRD regulations will be able to rely on the VSME standard to contribute the necessary information required to report on Scope 3 emissions generated from the supply chain they are part of. 

The structure of the VSME standard

While the specifics of the VSME standard could be subject to changes based on feedback from the consultation process, the general approach of the ESRS and, thus, the VSME adopts the criteria of double materiality. This empowers SMEs to disclose pertinent information about their business's adverse effects on people and the environment, as well as how sustainability issues can influence their financial standing. 

The VSME standard is developed around three modules that set the basis for SMEs to prepare reporting information: 

• Basic Module - Core basic module with data collection requirements across key environmental and social metrics, (including scope 1 & 2 GHG) but does not require materiality analysis for disclosure.   
• Narrative Module - outlines the narrative disclosures for Policies, Actions, and Targets (PAT) for enterprises that have them in place. To report in addition to the basic module. This module requires stakeholder engagement. 
• Business Partners (BP) Module - optional to be reported in addition to the basic module. It outlines information that might respond to financial sustainability requests from banks, investors, and other financial market players. 

Notably, both the Narrative and Sustainable Finance Modules demand materiality analysis, which will need to be disclosed only once if the enterprise adopts both optional modules.  

Benefits of adopting technological solutions in the VSME reporting 

According to the 2022 edition of the Eurobarometer on small and medium enterprises (SMEs), the overall sustainability efforts are improving compared to the 2018 edition results. 24% of surveyed companies have a solid plan in place to reduce their carbon emissions, and 32% are offering at least one green product or service.  

While the sustainability landscape is evolving, organisations need to adapt fast to the growing demands from partners and investors. Complying with the VSME voluntary reporting can enhance the strategic positions of a business and prepare it for further regulatory obligations.

Simultaneously, the survey revealed that 36% of organisations signal the need for financial support to enable higher resource efficiency. Introducing technology solutions is one key aspect that can facilitate and enhance the reporting process while minimising the costs and resources involved, especially for organisations relying on internal funding. 

Solutions such as a centralised data management system can streamline the collection of various sustainability KPIs across business operations. For instance, a small business can use it to keep track of its energy consumption, waste management practices, resource utilisation, and other ESG metrics. 

Startups and SMEs aiming to adopt the VSME standard can improve efficiency and accuracy by turning to technological tools for predictive analysis and automated reporting processes. AI-supported digital platforms enable enhanced communication with the stakeholders by providing access to up-to-date, accurate, and transparent ESG information and ultimately building a relationship based on trust and transparency.  

Approaching the VSME reporting with the FINGREEN AI solutions

While VSME reporting has its obvious benefits, it could pose a challenge for organisations new to sustainability reporting. At FINGREEN AI, we are familiar with the complexity and nuance of the European sustainability frameworks and are ready to assist our customers in every aspect of the reporting process. 

Our technology solutions, powered by AI, are designed to gather and report on all sustainability KPIs aligning with the VSME standard. 

From step one, we help you set up your company's profile to facilitate the collection of sustainability data for over 30 ESG metrics. By answering a set of questions and submitting verification documents, you'll generate a sustainability report based on European standards suitable for investors and fundraising.

In the next stage, we provide a tool to help your company calculate its scope 1 &  2 emissions using the GHG Protocol standard methodology.

In the final stage, we offer a shareable Data Room—a digital portfolio that serves various strategic purposes, from providing actionable data for decision-making to marketing materials and investment requests.

Contact us to learn how we can collaborate to achieve your sustainability objectives.