Blog

By Paul Thompson

Introduction

By the end of this year the highly controversial Omnibus proposals, European Commission proposals to water down sustainability reporting in the EU Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD), will be finalised. It looks likely that the threshold for mandatory reporting will be greatly increased, from companies employing more than 250 to companies employing more than 1,000. The upshot is that the vast majority of companies presently within scope will not be required to report. For them, just like small- and medium-sized companies (SMEs), sustainability reporting will be voluntary. This article will explore what sustainability reporting standard they might use and what this means for companies operating in EU accession countries.

Voluntary Sustainability Reporting Standard for Non-listed SMEs (VSME)

On 30 July 2025 the European Commission officially adopted EFRAG’s Voluntary Sustainability Reporting Standard for non-listed Micro, Small, and Medium-sized Enterprises (VSME) as a Recommendation. EFRAG had submitted the VSME to the Commission in December 2024. The Commssion’s press release, Q&A, and the recommendation in English, French and German can be accessed here. The standard, explainer videos, digital templates, and guidance is available on the official EFRAG VSME webpage here.

The VSME comprises two modules: the Basic module, with 11 data points, and the ‘comprehensive’ model, with nine more metrics if companies opt to go a stage further in their reporting. The basic model covers disclosures about climate transition plans, energy usage and greenhouse gas emissions (Scopes 1 and 2); water use, waste management and some social metrics such as workforce size, gender, location and pay rates. Most SMEs will likely only use this module. But some will want to go further and also use the Comprehensive module which adds in further disclosures on greenhouse gases (Scope 3 emissions, for example), targets for reducing carbon emissions, climate risks and extra workforce reporting, such as gender ratios and human rights policies the company may have.

Benefits of the VSME

The VSME will significantly help SMEs, including those that are operating in EU accession countries, in various ways. It offers a much less burdensome way of reporting on sustainability issues as compared with using European Sustainability Reporting Standards (ESRS). ESRS are in the process of being greatly simplified but will still be much more complex than the VSME. The VSME is designed as far as possible to be used with limited assistance, if any, from an accountant. The VSME will also enable managers to better manage their business, and protect the value in that business, by helping identify sustainability risks and opportunities. The VSME will also enable SMEs to produce a single report they can use when approaching banks for financing: SMEs will no longer have to produce a separate report for every financier they deal with. And finally, the VSME will help SMEs with their customers, especially larger firms subject to the data reporting requirements of CSRD. The same goes for companies operaying outside the EU but supplying EU companies sbject to the CSRD. The Omnibus proposes that companies within scope would not be permitted to ask SME suppliers for more data than VSME reporting requires. And, as with banks, SMEs would only need compile a single report for passing to all customers – no more meeting endless and differing questionnaires for every customer.

Voluntary Sustainability Reporting Standard for Small and Mid-Caps (‘Omnibus VSME’)

As previously mentioned the Omnibus proposals mean changing the scope of CSRD so the threshold for mandatory use is significantly raised, likely to companies with more than 1,000 employees. That leaves a reporting gap for companies emplying between 250 and 1,000. The proposal in the Omnibus is to use the VSME as a basis for a new sustainability reporting standard for this category of companies, so called ‘Omnibus VSME’. The Commission has said that once the Omnibus is finalized, the ‘Omnibus VSME’ will be developed. This standard is now the subject of intense debate and it is unclear if and when it will be developed.

As Corporate Disclosures reported Eurosif and others have released a joint statement urging EU policymakers to ensure there is a “credible and proportionate voluntary sustainability reporting standard” for companies with over 250 employees that are not subject to the CSRD under the revised scope. The joint statement says that the recently endorsed VSME standard is unlikely to be suitable “as it lacks the granularity, consistency, and reliability that investors and other sustainability information users need for financing purposes.” Hence, the statement recommends having a voluntary standard for small and mid-cap companies based on a subset of datapoints in the revised ESRS and which maintains a mandatory “but proportionate” materiality assessment. Others argue that the EU develop the standard by building on the VSME, perhaps adding a module for larger entities. Significantly the new standard may yet be the value chain cap, setting limits on the information in scope companies can ask from smaller companies in their value chain.  

Why the VSME Matters For Companies Outside the EU’s Internal Market

As explained above the VSME addresses a pressing market need. Banks, larger companies and investors increasingly request standardised sustainability information from SME suppliers in their value chains. The VSME presents a simple, straightforward, cost-effective way of meeting that request. In so doing it can faciliate access to finance, including sustainable finance, and secure existing and attract new business with EU companies. For EU-accession countries, the VSME offers a ready-made free to use tool that can help all companies, not just SMEs, gain access to the internal market and help them with sustainable transition.

How EU Accession Countries Can Use the VSME

There are various ways in which EU accession countries can adopt and use the VSME:

• National guidance and translation - accession countries can translate the VSME into local languages and publish national guidance that interprets the standard in light of domestic legal and economic contexts. EFRAG has already promoted digital templates and multi-language tools, which accession authorities can reuse or adapt. Local translations reduces entry barriers and helps SMEs access the standard. During these recent webinars, for stakeholders in EU accession countries, the World Bank’s Centre for Financial and Sustainability Reporting Reform (CFRR) showcased the VSME and the various inititaives to help implement it. Under its EAASURE program the CFRR may help with translations of the VSME for EU accession countries.
• Voluntary roll-outs and pilots - ministries of economy and finance, chambers of commerce and SME agencies can run pilot programmes with cohorts of SMEs in priority sectors (agri-processing, textiles, tourism). Pilot schemes can help identify practical data-collection challenges, allow testing of reporting timelines, and generate case studies that prove the business case for VSME use — for example, improved bank relationships or procurement wins. Grant-funded pilot projects are often an efficient way to build momentum.
• Integrate into financing and procurement conditions - public and private financiers in accession countries can accept — or prefer — VSME-based disclosures in lending and underwriting processes. Likewise, public procurement frameworks and larger firms in supply chains can require VSME summaries as part of pre-qualification. These demand-side levers create immediate incentives for uptake without needing statutory reporting mandates.
• Build digital and audit support services - where possible, professional accountancy organisations (PAOs), national accounting standard setters, software providers and business support organisations should develop low-cost digital templates, XBRL mapping tools and checklists to lower the time-cost of reporting. Service providers — accountants, sustainability consultants, and incubators — can be trained to offer VSME readiness packages. EFRAG’s digital template work signals that technical interoperability (e.g., digital filing formats) can help boost voluntary uptake.
• Use as a bridge to regulatory convergence - accession negotiators and regulators can reference VSME in drafting transitional measures, SME relief clauses or capacity-building chapters. Because VSME is aligned with ESRS, its concepts and metrics can later be mapped into mandatory frameworks, smoothing the compliance journey for companies that will eventually need to report under CSRD-style rules.

Benefits and Risks for Accession Countries

The benefits are real. The VSME offers a harmonised reporting format reduces transaction costs between EU companies and suppliers in accession countries. It strengthens investor confidence and can unlock green finance. And it raises corporate awareness of material sustainability risks and opportunities. From a policy perspective, the VSME can accelerate market-driven alignment with EU sustainability expectations even before formal adoption. Inevitably the risks and caveats are also real, but manageable. The voluntary nature means uptake is not guaranteed, and without capacity building SMEs, and small- and medium-sized accountancy practices (SMPs) that often prepare their reports, may produce low-quality reports that undermine credibility. There is also a danger that national programmes duplicate effort unless carefully coordinated with trade bodies and financial institutions. Finally, governments should guard against over-prescription: the VSME’s value lies in it being proportionate and voluntary — ‘gold-plating’ would undermine this value.

Road Map for Policymakers

A road map for policymakers in EU accession countries might look something like this:

1. Public endorsement and translation (0–6 months): officially recognise the VSME as the recommended voluntary standard for SMEs; translate standard and guidance.
2. Pilots and toolkits (6–18 months): fund pilots across regions and sectors; publish digital templates and explainers for bankers and procurers.
3. Market incentives (12–36 months): encourage banks and lead firms to adopt VSME-based supplier questionnaires; incorporate VSME in public procurement scoring.
4. Capacity building and professionalisation (ongoing): upskill auditors, accountants and SME advisers such as SMPs; integrate VSME concepts into SME advisory services and business schools.

Practical Tips to Get Started with VSME

The UN Global Compact has come up with four practical tips to help SMEs get started with the VSME – see the table below or download them here.

Concluding Comments

The VSME is a practical instrument for aligning small companies with European sustainability expectations while respecting their resource constraints. For EU-accession countries the VSME offers a low cost pathway to sustainability reporting that will, in turn, support access to finance and the EU internal market. With careful translation, pilot testing, and market incentives, accession authorities can leverage the VSME as a faciltator for sustainable transition without the imposition of heavy regulatory burdens. And the benefits and impact will be even greater if it serves as the basis for voluntary reporting for all companies employing up to 1,000.

THE IFRS FOUNDATION PRESENTS: PERSPECTIVES ON SUSTAINABILITY DISCLOSURE - WEBINAR SERIES