Introduction
On 30 July 2025, the European Commission published a recommendation on a voluntary sustainability reporting standard for non-listed small and medium-sized enterprises (SMEs) that has been, developed by EFRAG. The recommendation aims to limit the trickle-down effect on SMEs that are not covered by the CSRD, by endorsing the limitation by financial institutions and large companies of requests by them for sustainability information from non-listed SMEs in their value chains to information provided pursuant to the VSME standard. Moreover, the Commission recommends that non-listed SMEs that wish to voluntarily report sustainability information do so in accordance with the VSME standard.
Positioning of the recommendation within the Omnibus I Package
For companies with up to 1,000 employees, the Commission’s Omnibus I Package of 26 February 2025 introduced a proportionate reporting standard for voluntary use to be based on the VSME standard developed by EFRAG. This standard is intended to be adopted by the Commission as a delegated act, once the amendments to the CSRD have been finalised.
In the meantime, the Commission planned to issue a recommendation on voluntary sustainability reporting, based on the VSME standard – a step that has now been taken through its recommendation. The recommendation serves as a temporary measure until the Commission formally adopts a voluntary sustainability standard. The timing of that adoption will depend on the pace and conclusion of negotiations on the Omnibus I Package.
However, it is possible that the VSME standard set out in this recommendation could differ from the version adopted as a delegated act under the Omnibus I Package. The content of the future voluntary reporting standard depends on the ongoing negotiations between co-legislators regarding the scope of application for sustainability reporting requirements and on the revision of the first set of ESRS.
Main substantive features of the VSME standard
Objective of the VSME standard
The VSME standard covers the same sustainability issues as the European Sustainability Reporting Standards (ESRS) for large undertakings, but is tailored to be proportionate, reflecting the specific needs and characteristics of SMEs. Micro-undertakings are expected to apply only selected parts of the VSME standard.
This aligns with the so-called “value-chain cap”, which limits the extent to which the ESRS can impose reporting obligations on SMEs within a company’s value chain. Specifically, large undertakings may not be required to obtain sustainability information from SMEs in their value chain beyond that which SMEs would need to disclose under the proportionate standard for listed SMEs.
“If applicable” principle
Certain disclosures apply only in specific circumstances, as defined within each disclosure requirement. Information needs to be reported only if considered “applicable” by the undertaking (e.g., “if the undertaking employs 50 or more employees, it shall disclose …”). The VSME standard further clarifies that when one of the disclosures is omitted, it is assumed not to be applicable.
Modules of reporting
The VSME standard comprises a basic module and a comprehensive module. Reporting under the basic module is a prerequisite for reporting under the comprehensive module. The basic module covers minimum information to be reported on ESG topics consisting of 11 disclosures with a total of 51 datapoints. The comprehensive module is the optional module, under which sustainability reporting is extended by nine additional disclosures with a total of 42 additional datapoints. These datapoints are likely to be requested by undertakings, in addition to those in the basic module.
Assurance
The use of self-declarations by non-listed SMEs and micro-undertakings is deemed proportionate. There is no obligation to provide assurance of the information reported by them. A self-declaration by the SME is sufficient.
Flexible timing of sustainability reports
If a sustainability report is prepared to meet the needs of financial institutions or large undertakings that require an annual update, it should be prepared annually. If the undertaking prepares financial statements, the sustainability report should be prepared on a timeline consistent with the financial statements.
No obligation to publish sustainability reports
EFRAG has made it clear that the primary function of a sustainability report is to provide information to actual or potential business counterparties. However, if the undertaking decides to make its sustainability report available to the public, the undertaking may present that report in a separate section of the management report if it has one. Otherwise, the undertaking may present its sustainability report as a separate document.
