The Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) have paved the way for more sustainable corporate reporting. A central component of this development is the final VSME update (Voluntary Sustainability Reporting Standard for non-listed SMEs), which was recently adapted following public consultation. But what do these changes mean in concrete terms, what advantages does the VSME update bring and for which companies is it relevant?
What is the VSME update and why is it important?
The VSME update is EFRAG’s adaptation of the VSME standard from the draft version to the final version published in December 2024. While the comprehensive requirements of the ESRS with over 1,000 data points place numerous requirements on companies to report on environmental, social and governance (ESG) aspects, the VSME is voluntary and requires only a fraction of the disclosure requirements in order to minimize the administrative burden for SMEs.
The standard has been greatly simplified. These are the most important new features:
- Two modules instead of three: The PAT module has been removed, leaving the Basic and Comprehensive modules.
- Only 18 instead of 28 excess points to be reported.
- The performance of the double materiality analysis is not mandatory.
The most important changes at a glance
Two modules instead of three - The VSME standard becomes simpler
One of the most noticeable changes: The previous VSME standard has been reduced from three to two modules.
- The previous Narrative Policies, Actions and Targets (PAT) module has been completely removed.
- The two remaining modules are:
a) Basic Module
The Basic Module is the starting point for sustainability reporting by SMEs. It includes minimum disclosures on:
- Environment (energy consumption, greenhouse gas emissions, resource consumption)
- Social issues (employee conditions, health and safety)
- Business ethics (corruption incidents, compliance)
b) Comprehensive Module
The Comprehensive Module is aimed at SMEs that want or need to fulfill additional requirements – e.g. for investors, banks or larger business partners.
- The module contains detailed disclosures, e.g. on climate risks, GHG reduction targets and social indicators such as gender diversity in management.
With this new structure, the VSME standard is much clearer, less extensive and better adapted to the needs of SMEs.
Fewer excess points, materiality analysis no longer required
The new VSME standard eases the burden on smaller companies by eliminating the requirement for a double materiality analysis. At the same time, many over-items are deleted and the standard is reduced from 28 to 18 over-items to be reported.
Flexibility for Scope 3 emissions
Another highlight: the disclosure of Scope 3 emissions (indirect emissions from the value chain) is voluntary. Companies that collect their Scope 3 data can thus create additional transparency and enhance their sustainability strategy.
Costs and benefits of the new VSME standard
EFRAG has published a comprehensive study with a cost-benefit analysis of the new VSME standard. Here are the most important results:
1. increase competitiveness
SMEs that use the VSME standard can improve their competitiveness by strengthening their market position. The increased transparency creates trust among business partners and investors. In particular, companies that are active in “green markets” or offer sustainable products and services benefit from better perception and positioning.
2. take advantage of financial benefits
ESG reporting gives SMEs access to more sustainable sources of financing. According to the study, interest rate advantages of between 10 and 30 basis points on loans can be achieved by using the VSME standard. According to EFRAG’s calculations, the financial benefits of applying the standard could increase to a total of 580 million euros by 2028.
3. improved internal organization
Applying the VSME standard helps companies to improve their internal processes and management practices. Companies can identify opportunities to optimize resource allocation, mitigate risk and capitalize on emerging trends in sustainability and social responsibility. The regular analysis of ESG performance thus promotes strategic decision-making and strengthens internal collaboration within the company.
4. lower entry costs
The revision of the standard has significantly reduced the costs of compliance. The elimination of the materiality analysis saves companies between 6,000 and 20,000 euros. In addition, the use of digital platforms facilitates implementation and reduces the time required by 10 to 30%.
Conclusion: What do the changes mean for SMEs?
The revised VSME standard makes it easier for small and medium-sized companies to get started with sustainability reporting. Thanks to the new branch structure and the removal of the PAT module, the effort and costs are significantly reduced. At the same time, there is still enough flexibility to adapt the standard to individual requirements.
Recommendations for companies
Regulatory uncertainty: The lack of transposition of the CSRD into national German law is causing uncertainty for many companies. However, it is not advisable to wait and do nothing. It is worth making so-called “no-regret moves” are worthwhile:
No-regret moves are activities that provide a benefit to the company and can almost certainly be reused in a subsequent reporting obligation. For most companies, these include carrying out the materiality analysis and preparing the ESRS VSME report.
- Revise your ESG strategy: Align your sustainability strategy with the new materiality criteria and reporting requirements.
- Use digital tools: With our updated sustainability report template for SMEs, you can implement the new VSME standard effortlessly. The Word template provides a pre-written report that you only need to fill in with your data. It is structured, practical and tailored to the requirements of the current VSME standard.
- Start voluntary reporting: Smaller companies in particular, which are not directly covered by the CSRD, can benefit from voluntary reporting in order to create transparency towards stakeholders or to meet the requirements of customers or suppliers.
- Follow regular updates: Keep up to date with further changes to the ESRS and CSRD so that you can react in good time. We regularly report on relevant changes in our bi-weekly newsletter. With a subscription, you can easily stay informed.
