Small and medium-sized enterprises (SMEs) are the backbone of economies worldwide. In the EU alone, SMEs make up over 99% of all businesses, employing around 100 million people. Despite their massive collective impact, most sustainability frameworks and reporting requirements have traditionally focused on large corporations. But times are changing, and so are expectations. Enter the Voluntary Sustainability Reporting Standard for SMEs (VSME), a critical new initiative designed to bring SMEs into the sustainability reporting ecosystem in a practical and scalable way.
What is the VSME?
The Voluntary Sustainability Reporting Standard for SMEs is a framework being developed under the European Financial Reporting Advisory Group (EFRAG) to help SMEs disclose their sustainability performance. Unlike the Corporate Sustainability Reporting Directive (CSRD), which applies to large and listed companies, the VSME is voluntary and specifically designed for the capacity, scale and resources of small businesses.
VSME offers a simplified and flexible structure that SMEs can use to communicate their environmental, social and governance (ESG) practices to stakeholders, from investors and banks to customers and supply chain partners.
Why SMEs Should Care About Sustainability Reporting
While sustainability reporting may seem like a concern for large corporates with dedicated ESG teams and consultants, it’s increasingly relevant for SMEs.
Here’s why:
- Market Pressure
SMEs are often embedded in the value chains of larger companies that are now subject to strict reporting requirements under CSRD. These larger firms are demanding ESG data from their suppliers, which means SMEs need to be ready to provide credible information. - Access to Finance
Banks and investors are placing increasing importance on ESG factors in their decision-making. An SME that can clearly articulate its sustainability risks and opportunities is more likely to secure financing and better terms. In an Irish context, think of Green Loans from pillar banks or the SBCI green business growth scheme. - Customer Expectations
Consumers and B2B clients alike are shifting toward ethically and sustainably produced goods and services. Transparency builds trust, which can be a strong differentiator in competitive markets. - Regulatory Preparedness
While VSME is currently voluntary, regulatory landscapes evolve. Starting early helps SMEs build internal capacity and avoid being caught off-guard if reporting becomes mandatory down the line. - Operational Benefits
Sustainability reporting isn’t just a compliance task; it often uncovers inefficiencies and areas for innovation. SMEs that track energy, waste or employee wellbeing can discover cost savings and productivity gains.
Key Features of the VSME Framework
What makes VSME especially suited to SMEs is its scalability and modularity. It is being designed with two main tiers:
- Basic Module
Tailored for micro and small businesses, this focuses on qualitative disclosures and a limited set of performance indicators. It avoids complex metrics and technical jargon, making it approachable for businesses without sustainability expertise. - Comprehensive Module
Designed for more mature SMEs or those in sustainability-sensitive sectors, this offers a deeper and more structured disclosure aligned with stakeholder expectations and international frameworks.
Both modules aim to strike a balance between credibility and practicality, offering guidance and templates to ease the reporting process.
How SMEs Can Start Using VSME
Although the standard is still under development, SMEs don’t have to wait to get started. Here are a few steps to prepare:
- Assess Materiality: Identify which sustainability issues are most relevant to your business and stakeholders, whether it’s carbon emissions, water usage, employee wellbeing or supply chain ethics.
- Engage Stakeholders: Talk to customers, investors, employees and suppliers about what sustainability means to them. This helps ensure your reporting is relevant and adds value.
- Build Internal Capability: Even basic training for staff or appointing a sustainability champion can go a long way in making reporting part of business-as-usual.
- Use Available Tools: Look for draft templates and early guidance from EFRAG, green grants, local business associations or sustainability consultancies to begin tracking and reporting performance.
A Catalyst for Change
VSME isn’t just about ticking boxes; it’s about enabling SMEs to play a meaningful role in the green and just transition. Collectively, SMEs have a massive impact on emissions, employment and innovation. But without a practical way to measure and communicate this, their efforts can go unrecognised and unsupported.
By adopting VSME, SMEs can future-proof their operations, build trust with stakeholders and contribute to a more resilient and transparent economy. The sooner SMEs begin this journey, the more agile and competitive they will be in an economy that increasingly rewards purpose alongside profit.
