Introduction
For small and growing businesses (SMEs) across Europe, sustainability reporting can feel like a moving target. The EU’s Corporate Sustainability Reporting Directive (CSRD) sets mandatory disclosure rules for large and listed companies, while the Voluntary Standard for non-listed SMEs (VSME) offers a simpler, optional framework for smaller firms. If you need a refresher on the basics, see our primer on CSRD reporting.
Understanding the difference between these two frameworks is essential — not only to stay compliant if your business is directly covered by CSRD, but also to meet expectations from larger clients and financiers who are.
This guide explains how CSRD and VSME fit together, which one applies to you, and how the VSME’s Basic and Comprehensive Modules can help you prepare meaningful sustainability data without overcomplicating your reporting.
1. What Is the CSRD?
The CSRD (Directive (EU) 2022/2464) expands sustainability reporting requirements to all large EU undertakings and listed SMEs, replacing the earlier Non-Financial Reporting Directive.
A company falls under the CSRD if it meets two of the following three thresholds:
- More than 250 employees
- More than €40 million turnover
- More than €20 million total assets
The CSRD requires these companies to report detailed sustainability data according to the European Sustainability Reporting Standards (ESRS). These cover environmental, social, and governance (ESG) areas such as energy use, workforce conditions, biodiversity, and supply chain impacts. Check the CSRD deadlines for SMEs to see when each category starts reporting.
From 2026 onwards, listed SMEs will also be required to report, but they have an additional two-year transition period to adapt.
2. What Is the VSME Standard?
The VSME Standard, developed by EFRAG and published in 2024, is a voluntary reporting framework for non-listed micro, small, and medium-sized enterprises. It is designed to:
- Help SMEs respond to sustainability data requests from banks or large clients.
- Improve internal management of environmental and social impacts.
- Build access to sustainable finance and value-chain opportunities.
VSME applies to companies that do not fall under CSRD but wish to align with its principles. Review the modules in VSME Basic vs Comprehensive Module to decide how much detail you need. According to EU definitions:
- Micro enterprises: ≤ €450k balance sheet, ≤ €900k turnover, ≤ 10 employees
- Small enterprises: ≤ €5m balance sheet, ≤ €10m turnover, ≤ 50 employees
- Medium enterprises: ≤ €25m balance sheet, ≤ €50m turnover, ≤ 250 employees
3. CSRD vs VSME: The Key Differences
| Feature | CSRD | VSME |
|---|---|---|
| Legal status | Mandatory under EU law | Voluntary (non-listed SMEs) |
| Target companies | Large & listed SMEs | Non-listed micro, small, and medium undertakings |
| Reporting standard | ESRS (detailed, mandatory) | VSME Standard (simplified, proportional) |
| Assurance requirement | Limited assurance required | None (optional) |
| Scope of disclosures | Broad: environmental, social, governance (double materiality) | Streamlined: focused metrics relevant to SMEs |
| Purpose | Investor and public transparency | Supply chain visibility and finance readiness |
| Timeline | Reporting starts 2025–2028 (depending on company size) | Voluntary, anytime |
4. Inside the VSME: Basic vs Comprehensive Modules
The VSME Standard gives flexibility through two reporting levels:
Basic Module
Covers minimum disclosures across:
- Environment: energy use, GHG emissions, pollution, water, waste
- Social: workforce composition, health and safety, pay, training
- Governance: corruption and bribery metrics
It’s designed for micro and small firms to meet essential data requests without excessive detail.
Comprehensive Module
Adds optional disclosures often required by banks, investors, or large corporate clients, such as:
- GHG reduction targets and transition plans
- Climate risk management
- Human rights processes and diversity ratios
SMEs can start with the Basic Module and move up when stakeholders request more information.
5. Why It Matters for SMEs
Even if your business isn’t directly covered by CSRD, it’s likely that larger clients, lenders, or public buyers will ask for sustainability data. Using the VSME Standard allows you to:
- Respond confidently to supply-chain requests.
- Prepare early for future regulation.
- Save time with proportionate, standardised templates.
- Show credibility with data aligned to EU expectations.
Adopting VSME is a strategic choice — it helps SMEs stay relevant in markets increasingly driven by sustainability performance. Pair it with structured supplier collaboration like the steps in Value Chain Mapping for CSRD.
Frequently Asked Questions
Do all SMEs have to comply with the CSRD?
No. Only large companies and listed SMEs are required to report under the CSRD. Non-listed SMEs can use the VSME Standard voluntarily to align with EU expectations and provide data to clients or financiers.
Can an SME start with VSME and later move to CSRD?
Yes. The VSME Standard is fully compatible with the CSRD framework. If your business grows beyond CSRD thresholds, your VSME data provides a strong foundation for ESRS-based reporting.
What’s the difference between VSME Basic and Comprehensive Modules?
The Basic Module includes essential disclosures suitable for smaller firms. The Comprehensive Module adds advanced data points (e.g., climate targets, human rights) that larger clients or banks may request. Most SMEs start with Basic and expand gradually.
Why should I use the VSME Standard if it’s voluntary?
Because it helps your business stay competitive. Many larger companies and financial institutions prefer suppliers who can provide reliable sustainability data. VSME lets you do this simply and affordably.
Key Terms
- CSRD: Corporate Sustainability Reporting Directive (Directive (EU) 2022/2464) — EU law requiring large and listed companies to report sustainability information.
- VSME: Voluntary Standard for non-listed Micro, Small and Medium-sized Enterprises — EFRAG’s simplified sustainability reporting framework.
- ESRS: European Sustainability Reporting Standards — mandatory reporting standards under CSRD.
- EFRAG: European Financial Reporting Advisory Group — develops ESRS and VSME.
- Double Materiality: Concept requiring companies to report both financial impacts and environmental/social effects of their activities.
Conclusion
The CSRD sets the new standard for corporate transparency in Europe, while the VSME Standard ensures small businesses aren’t left behind. By adopting VSME, your company can engage in sustainability reporting that is credible, practical, and proportionate to its size. If you are still finding your footing, start with the friendly walkthrough in CSRD for Beginners.
With a clear structure and consistent effort, CSRD becomes an advantage — not an obstacle — for small and growing businesses.