The New Recommendation for SMEs Sustainability Reporting

SME Sustainability Reporting

On July 30, 2025, the European Commission formally adopted a recommendation introducing a Voluntary Sustainability Reporting Standard for non-listed Micro-, Small-, and Medium-sized Enterprises (VSME). Developed by EFRAG, this initiative provides a streamlined, standardized, and accessible framework to help SMEs engage in sustainability reporting.

Non-listed SMEs are not directly required to report under the Corporate Sustainability Reporting Directive (CSRD), yet they face growing pressure to provide ESG data to large business partners and financial institutions. These stakeholders, subject to mandatory disclosure requirements, can cascade data demands down their value chains. As a result, SMEs will be burdened with fragmented, repetitive ESG questionnaires, leading to inefficiencies, duplicated efforts, and rising operational costs.

This voluntary standard aims to replace the multitude of uncoordinated ESG data requests, thereby increasing efficiency and lowering operational costs. Furthermore, the Recommendation is expected to enhance SMEs' access to sustainable finance by providing credible and comparable sustainability data. By encouraging large companies to base their data requests on the VSME, the Commission positions it as a de facto market standard, promoting greater consistency across supply chains.

The VSME reflects a forward-thinking regulatory approach, with the goal of enabling broad participation in sustainability efforts without stifling growth or competitiveness.

The VSME characteristics

The VSME is specifically designed for companies that are not publicly traded and are not subject to the mandatory Sustainability Reporting. Its primary target audience comprises undertakings with fewer than 250 employees (micro, small, and medium-sized enterprises), while it can apply to bigger companies that are willing to start their reporting journey.

Key features:

• It is voluntary
• Intended for companies with fewer than 250 employees
• Aligned with the European Sustainability Reporting Standards (ESRS)
• Covers complete Environmental, Social & Governance (ESG) topics
• Tailored to the size, capacity, and needs of SMEs

A Modular and Flexible Approach

The VSME standard is structured around a two-module approach, a design choice to ensure proportionate and adaptable reporting for the diverse sizes and capabilities of SMEs. This modularity allows businesses to choose a level of detail that best matches their needs.

The Basic Module

This module is intended as the entry-level for all SMEs embarking on their sustainability reporting journey. It is specifically highlighted as the target module for micro undertakings (defined as SMEs with fewer than 10 employees), providing a manageable starting point. It comprises 11 core disclosures that focus on key sustainability indicators most frequently requested by value chain partners. These are the fundamental data points that provide essential transparency.
Key disclosures within this module include Greenhouse Gas (GHG) emissions (Scope 1 and 2), other environmental metrics, own-workforce data, and anti-corruption measures. It provides general information and basic metrics across environmental, social, and governance areas.

The Comprehensive Module

This module builds upon the Basic Module, offering a more in-depth reporting framework for SMEs that need or wish to provide more detailed sustainability information, it includes 9 additional disclosures. These supplementary disclosures are often sought by banks and investors, as well as value chain partners who require a more understanding of an SME's sustainability performance. Examples of disclosures in this module cover a brief description of ESG practices or future initiatives (disclosure C2), GHG reduction targets and climate transition plans (disclosure C3), confirmed value chain incidents (disclosure C7), and information related to exclusion from EU reference benchmarks (disclosure C8).

A cornerstone of the VSME's design, aimed at reducing complexity, is that it does NOT require a mandatory materiality assessment. This stands in stark contrast to more complex reporting frameworks, which mandate a rigorous double materiality assessment process. Instead, the VSME promotes flexibility and usability through an "if applicable" conditionality. This means that undertakings are only required to apply and report on sustainability topics and disclosures that are genuinely relevant to their specific operations and business activities. If a particular disclosure does not apply to a company, there is no obligation to report on it, significantly simplifying the process. While a formal assessment is not mandated, even a simplified analysis of materiality can be beneficial. This helps companies identify which data points are most pertinent to their business, ensuring the reported information is truly meaningful and impactful.

Digital Tools and Ecosystem Support

To support the adoption of the Voluntary Sustainability Reporting Standard for SMEs (VSME), EFRAG has introduced a suite of digital tools, including an Excel template, XBRL taxonomy, and an XBRL converter for generating machine-readable disclosures. These resources, available on EFRAG's website, will soon support multiple languages and include additional mappings to tools like GHG calculators. EFRAG is also developing practical guides to help SMEs draft their disclosures on key topics such as sustainable transition practices (C2), climate targets and transition planning (C3), and severe human rights incidents within the value chain (C7).

EXO.G platform builds on this foundation by providing SMEs with an intuitive, AI-powered platform that simplifies ESG data collection and report generation, fully aligned with VSME framework. With features such as guided reporting, modular templates, and collaborative tools for engaging suppliers, EXO.G ensures that even non-experts can confidently create compliant, transparent, and impactful ESG reports.
EXO.G transforms regulatory requirements into strategic opportunities by empowering companies to move beyond compliance and toward performance-driven sustainability. Instead of treating ESG as a reporting obligation, EXO.G helps businesses unlock value through data-driven, actionable insights and strategic roadmaps for improvement.

The platform simplifies frameworks like the VSME standard into guided workflows, enabling institutions to collect and structure data efficiently, even without in-house sustainability teams. Using AI and robust analytics, it transforms that data into clear diagnostics, benchmarking intelligence, and customized action plans to reduce risks, improve efficiency, and elevate ESG performance.

As EFRAG expands its resources, EXO.G integrates them into a seamless user experience, helping SMEs transform regulatory requirements into strategic opportunities.