Sustainability Reporting: The Voluntary Standard for SMEs in Europe

The European Commission has issued recommendations to support small and medium-sized enterprises (SMEs) in dealing with growing demands for sustainability reporting.

While the Corporate Sustainability Reporting Directive (CSRD) only imposes legal obligations on large companies, SMEs are increasingly being asked to disclose environmental, social and governance (ESG) information by banks, investors and larger corporate clients. This is sometimes referred to as the ‘trickle-down effect’, since SMEs are indirectly impacted by the obligations of bigger players in their value chains. To ease this pressure and provide SMEs with a clear, proportionate framework, the Commission has introduced a Voluntary Sustainability Reporting Standard (VSME).

Accountants advising SMEs have a central role to play in explaining this new standard, guiding adoption and helping clients to use sustainability reporting to their advantage.

Structure of the voluntary standard

The voluntary standard is structured around two modules. The first is the basic module, which represents the minimum reporting requirement under the framework. For micro-enterprises, use of the basic module is entirely flexible, and they may choose to adopt only certain elements. For SMEs more broadly, the basic module is expected to be the starting point and is considered the minimum requirement if they choose to engage with the standard.

The second is the comprehensive module, which builds on the first with more detailed disclosures. This allows SMEs with greater capacity, or those that face heavier reporting demands, to provide fuller information. EFRAG has also developed practical guidance to help SMEs understand and apply the framework in practice, which should prove especially useful for smaller businesses with limited in-house expertise.

Key recommendations to SMEs

The Commission recommends that SMEs should adopt the VSME on a voluntary basis when they decide to publish sustainability information. Importantly, the VSME is designed to remain proportionate to the SME’s size and resources. For example, SMEs can rely on self-declarations rather than costly external assurance, which keeps compliance affordable. They may begin with the basic module and expand their reporting over time as they become more comfortable with sustainability disclosures. In addition, the guidance material provided alongside the standard offers practical tools to streamline the process, which accountants can use when assisting clients in the preparation of sustainability reports.

Benefits for SMEs

The potential benefits for SMEs are significant. By adopting the VSME, businesses can strengthen their credibility with banks and investors, improving access to sustainable finance. They will also be better positioned to maintain relationships with larger corporate clients who increasingly demand ESG information from their suppliers.

On a strategic level, reporting helps SMEs to monitor their own risks and opportunities, thereby improving resilience and competitiveness. Looking ahead, SMEs that voluntarily disclose sustainability data may even be able to publish it on the European Single Access Point, which would make them more visible to investors and expand their funding opportunities.

Benefits for accountants

For accountants, the implications are clear. Accountants advising SMEs should focus on:

• Materiality: They should help SMEs to identify which sustainability topics are most relevant to their operations and stakeholders.
• Efficiency: Use the VSME standard to avoid duplication of effort when responding to multiple requests.
• Capacity building: Train SME staff to integrate sustainability data collection into routine business processes, ensuring that reporting is both proportionate and efficient.
• Digital tools: Encourage the adoption of software solutions that facilitate compliance with the standard.

Rather than treating sustainability reporting as a compliance burden, accountants can position it as a tool for building trust with partners, enhancing financing prospects and gaining competitive advantage. Knowledge of digital reporting solutions, national support measures and the evolving regulatory landscape will be essential.

Looking ahead

The Commission’s recommendations are also forward-looking. Discussions are underway to simplify existing sustainability reporting requirements so that only very large companies with over 1,000 employees remain subject to
mandatory rules.

If this proposal is adopted, voluntary reporting through the VSME will become even more important for SMEs. In time, the VSME may itself be formalised into delegated legislation, and so accountants should view current recommendations as both a practical solution for today and a likely foundation for the future.

"Accountants advising SMEs have a central role to play in explaining this new standard. By adopting the VSME, businesses can strengthen their credibility with banks and investors."