Voluntary Small and Medium Enterprise European Sustainability Reporting Standard (VSME ESRS, “the VSME”) explained

In recent years, the push for sustainability and transparency in business practices has transformed from a competitive advantage to a necessity. Recognizing this shift, the European Financial Reporting Advisory Group (EFRAG) recently introduced a draft of the Voluntary Small and Medium Enterprise European Sustainability Reporting Standard (VSME ESRS). While these standards are voluntary, they present a structured opportunity for SMEs to integrate sustainability into their business model and strategy, enhance their credibility, and respond to increasing demands from stakeholders such as investors, banks, larger partner enterprises, or public sector. 

With this article, we provide you with a practical introduction to the VSME ESRS, covering what it is, why SMEs should consider voluntary adoption, and how companies can start implementing these standards — even if they’re new to sustainability reporting. 

What is the VSME ESRS?

The VSME ESRS has been crafted with simplicity in mind. It offers non-listed micro, small, and medium-sized enterprises (SMEs) within the EU a way to engage in sustainability reporting without a heavy burden of mandatory compliance. These standards designed by EFRAG provide a “light” reporting option that minimizes resource strain while delivering meaningful sustainability insights. 

For companies already facing sustainability inquiries from larger entities or looking to stand out in their industry, the VSME ESRS can simplify the reporting process, aligning with common standards and potentially ease access to funding, partnerships, and growth opportunities. 

Why consider voluntary reporting?

Voluntary sustainability reporting for SMEs serves multiple purposes: 

• Strengthened stakeholder relationships: Investors, clients, and business partners increasingly expect transparency on environmental, social, and governance (ESG) practices. Voluntary reporting reassures them that the company is aligned with shared sustainability goals. 
• Access to finance: Demonstrating proactive management of sustainability issues can increase attractiveness to lenders and investors who prioritize ESG. 
• Streamlined data requests: VSME ESRS simplifies reporting for companies facing numerous ESG data requests by providing a standardized format. 
• Competitive advantage: Proactive adoption of sustainability reporting standards sets the business apart and helps your company to be one step ahead, especially as sustainability regulations worldwide rapidly evolve and pressure for sustainability compliance grows regardless of the firm size. 

How is VSME ESRS Structured?

The VSME ESRS adopts a modular approach with three distinct sections, each designed to support SMEs in different areas of reporting: 

• Basic Module: This includes 12 key disclosure requirements across Environment, Social, and Business Conduct categories. It is a simplified, essential set of metrics that even small enterprises can manage, providing a foundational overview of sustainability performance. 
• Policies, Actions, and Targets (PAT) Module: With 5 qualitative disclosure requirements, this module allows SMEs to share their internal sustainability policies, initiatives, and objectives. It requires a materiality assessment to determine relevant topics, ensuring report’s focus on high-impact areas. 
• Business Partners (BP) Module: This module contains 11 disclosure requirements designed to meet the data needs of investors and business partners. It combines quantitative and qualitative disclosures, and, like the PAT Module, it requires a materiality assessment to ensure relevance.  

First Steps for SMEs Starting with Voluntary Reporting

1. Review and select modules: Begin with the Basic Module, which is essential for all reporting companies. For more in-depth reporting, consider the PAT and BP modules if they align with your sustainability initiatives and materiality assessment results. 
2. Conduct a (Double) Materiality Assessment: If using the PAT and BP modules, a materiality assessment is necessary. This helps prioritize the sustainability issues that are most relevant to your business, ensuring that reporting focuses on meaningful metrics. 
3. Map existing sustainability data: Identify what data you currently have, such as energy usage, material consumption, or workforce safety metrics, and develop a method for tracking these indicators on an ongoing basis. This will form the core of your sustainability reporting. 
4. Set realistic ESG goals: Define achievable goals and KPIs in line with ESG objectives to track your progress over time. Tools like the Science Based Targets initiative (SBTi) can guide you in setting science-backed emissions targets. 
5. Develop internal processes: Use frameworks or software to streamline data collection, allowing for easier sustainability reporting and better alignment with ESRS standards. Platforms like Code Gaia and others have started incorporating the VSME standards into their reporting systems, which may be beneficial for automating and organizing your reporting efforts. 

Practical Tips for Reporting Success

• Start small, grow gradually: Begin with the Basic Module, even if you are aiming to adopt all three modules later. This allows you to establish a foundational reporting process before expanding. 
• Prioritize materiality: The success of sustainability reporting lies in its relevance. Use your materiality assessment to inform which areas of your operations have the greatest impact and should be the focus of your reporting. 
• Leverage external support: If new to sustainability reporting, consider training programs, such as the upcoming intensive training week we offer, covering topics such as the GRI Standards, CSRD requirements and ESRS standards, ESG management, and Sustainable Development Goals (SDG) mapping tools for reporting. 
• Aim for continuous improvement: Reporting is not a one-time activity; it is a long journey. With each reporting cycle, assess where improvements can be made, whether in data collection methods, sustainability initiatives, or overall reporting transparency. 

Take the Next Step Toward Effective Sustainability Reporting

To navigate the complexities of sustainability reporting, especially for newcomers, our intensive training week offers tailored guidance on the VSME ESRS, GRI Standards, and much more. Designed specifically for project managers, consultants, and members of social responsibility teams, these sessions are ideal for SMEs looking to establish a reporting process that aligns with evolving expectations. 

Equip your team with the tools and confidence needed to lead in transparency and sustainability. Secure your spot here in one of our trainings and join the growing movement toward responsible business practices! 

 

Date: 06 November 2024

Author(s):

Tünde Mikó & Daria Kautto

 

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