VSME — Voluntary Standard for Small + Medium-sized Undertakings

Definition

VSME — the Voluntary Standard for Small and Medium-sized Undertakings — is the EU sustainability reporting standard designed for SMEs that fall outside the CSRD’s mandatory scope. Developed by EFRAG (final approved 13 November 2024) and adopted as a non-binding European Commission Recommendation 2025/1710 on 30 July 2025 (Commission document C(2025) 4984 final), VSME provides a simplified, two-tier framework that SMEs can use voluntarily for sustainability reporting.

Critically, after the Omnibus I Directive (in force March 2026), VSME also functions as the regulatory ceiling on what CSRD-in-scope companies can demand from value-chain partners with fewer than 1,000 employees. The standard therefore has both a voluntary-reporting role and a legal-protection role.

Two-tier structure

VSME is designed to be proportionate to SME capacity:

Module	Designed for	Content
Basic Module	The smallest entities (micro-enterprises and small businesses)	Minimal core disclosures across environment, social, and governance — enough to satisfy basic stakeholder and lender requests
Comprehensive Module	Larger SMEs facing more sophisticated data demands from customers, lenders, and investors	Additional disclosures aligned to common ESG questionnaire formats; sufficient to substantiate value-chain reporting to CSRD-in-scope customers

An SME can self-select which module to apply based on its size, stakeholder expectations, and reporting maturity. The Comprehensive Module is typically appropriate for SMEs with: significant EU export exposure, large CSRD-in-scope customers, bank credit facilities tied to ESG ratings, or institutional investor backing.

The value-chain cap — VSME as legal ceiling

A long-standing concern with CSRD was the “trickle-down” effect: large in-scope entities asking their entire supply chain — including small Indian or other non-EU suppliers — for sustainability data far beyond what those suppliers were legally required to report.

Omnibus I substantially strengthens the value-chain cap. Member States must ensure that CSRD filers may not request sustainability information from any value-chain partner with fewer than 1,000 employees beyond:

1. Information specified in the VSME standard, AND
2. Additional sustainability information commonly shared between undertakings in the relevant sector

This is a legal protection, not a guideline. An Indian SME supplier to a large EU customer cannot be required (on the basis of the customer’s CSRD obligation) to provide data outside the VSME envelope, with only the narrow sector-typical exception.

The cap does not apply to:

• Value-chain partners with 1,000 or more employees (these are large entities; the cap does not arise)
• Information requested for commercial reasons unrelated to the customer’s own CSRD reporting obligation
• Information separately required under sector-specific regulations (e.g., conflict-minerals rules, deforestation regulation)

India relevance — three SME use cases

1. Indian SME supplier to a CSRD-in-scope EU customer. The VSME envelope is the legal ceiling on what the customer can require under CSRD. Voluntarily preparing a VSME Comprehensive Module report substantially reduces ad-hoc data requests + improves the supplier’s standing with the EU customer.

2. Indian SME with EU institutional lender exposure. European banks subject to their own CSRD + EU Taxonomy reporting are increasingly requesting structured ESG data from borrowers. A VSME Basic or Comprehensive Module report serves this directly.

3. Indian SME preparing for IPO or institutional investor entry. A VSME report is a credible “starter pack” demonstrating ESG reporting maturity, useful in pre-IPO investor diligence even where no CSRD obligation applies.

For Indian SMEs with no EU exposure, VSME is not particularly relevant — domestic reporting under the GST + MCA frameworks remains the primary compliance focus.

VSME vs full ESRS

VSME is intentionally much lighter than ESRS Set 1:

Aspect	VSME	ESRS Set 1
Scope	Voluntary, SME-sized entities	Mandatory for CSRD-in-scope EU large undertakings + EU-listed entities
Modules	Basic + Comprehensive	12 mandatory standards (ESRS 1-2, E1-E5, S1-S4, G1)
Materiality	No materiality assessment required — operates on an “if applicable” basis; materiality was removed from the final standard following EFRAG’s public consultation (preparers found it too complex; banks + investors questioned the reliability of SME-level materiality outputs)	Double materiality (impact OR financial)
Datapoints	Substantially fewer	Even after Revised ESRS Set 1’s >60% reduction, materially more
Assurance	Voluntary	Mandatory limited assurance under CSRD

Related terms

• CSRD Disclosure Framework methodology page — full walkthrough including the value-chain cap mechanics and the three India-relevance cases
• CSRD — the EU directive that creates the value-chain cap
• ESRS — the parent standards family that VSME complements
• NESRS — the standards for non-EU parent groups (separate workstream)
• BRSR — India’s parallel listed-entity sustainability framework
• Double Materiality — the ESRS framework concept; VSME uses a simpler risk-based approach