The European Financial Reporting Advisory Group (EFRAG) has released its Voluntary Sustainability Reporting Standard for non-listed micro, small and medium-sized enterprises (VSME). The announcement is a big move aimed at streamlining sustainability reporting and supporting SMEs to access green financing. 

The introduction of VSME will provide private market firms, asset managers, and impact investors with a standardized framework that simplifies ESG reporting for SMEs, enhancing transparency and comparability in sustainable finance practices.

Let’s discuss the release of VSME by EFRAG in detail. 

About the VSME

The newly introduced VSME is a set of rules or regulations for ethical green financing practices among small and medium-sized enterprises. The framework is finalized after a public consultation period from January 22 to May 21, 2024, on the Exposure Draft of the VSME, receiving inputs from stakeholders, banks, national standard setters and investors around the country. 

The main objective of the VSME is to provide a straightforward framework for non-listed micro, small and medium enterprises (SMEs) to report sustainability practices that address challenges posed by many uncoordinated ESG data requests they typically face. 

Since SMEs are not covered by the Corporate Sustainability Reporting Directive (CSRD), the VSME regulation is designed to address the growing demand for transparency around SMEs and act as the main regulation to enhance transparency and facilitate access to sustainable finance in small and medium-sized enterprises. 

“The issuance of the VSME confirms EFRAG’s commitment to contribute to a more sustainable economy. VSME is designed to support the availability of simple but relevant sustainability related data. It aims at reducing the burden for SMEs currently confronted with multiple uncoordinated data requests and, when supported by the appropriate online platforms and tools, will offer new business and financing opportunities as well as additional management insight to the reporting companies.” — Patrick de Cambourg, the EFRAG SRB Chair.

Key aspects of the VSME

• The VSME is designed with a modular structure to accommodate different reporting levels as per enterprises. It is divided into two main modules — Basic module and Comprehensive module. 

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  The Basic module has 11 disclosures on basic SME sustainability practices, which are intended to provide key ESG insights without overwhelming smaller SMEs. However, the Comprehensive module includes 9 disclosures aimed at SMEs with established sustainable processes, providing extensive data to stakeholders.

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  As per the feedback from the stakeholders on consultation, the VSME has been developed using simplified and clear language, excluding complex terms from reporting standards to make it easily understandable by SMEs. 

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  The new VSME has removed materiality analysis from the standard used in CSRD and replaced it with an ‘if applicable’ principle, which means that non-listed SMEs only have to focus on disclosing the most necessary information without conducting a detailed double materiality assessment. 

Next steps

In 2025, EFRAG will activate a series of initiatives such as the issuance of support guides, educational material, outreaches, awareness-raising events and monitoring of emerging tools and platforms to support the implementation of the VSME regulation. 

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