How VSME changes ESG data collection for banks and investors

For banks, asset managers and insurers, ESG data collection from small and medium-sized counterparts has been an expensive, manual and unreliable process. Each institution designs its own questionnaire, sends it to hundreds or thousands of SME borrowers and suppliers, and then spends weeks reconciling inconsistent responses into a structure that fits its own regulatory reporting. The VSME standard changes this dynamic fundamentally — not by adding another framework, but by replacing the fragmented questionnaire landscape with a single standardised dataset that maps directly to the regulatory obligations financial institutions already face.

This article examines what the VSME means specifically for data users: banks managing loan portfolios, asset managers reporting under SFDR, and corporates collecting supply chain ESG data at scale.

The problem the VSME solves for data users

Financial institutions requesting sustainability data from SMEs face three compounding issues. First, there is no consistency: each bank or corporate sends a different questionnaire with different definitions, units and scope. Second, response quality is low: SMEs without sustainability expertise struggle with ambiguous questions, producing data that requires extensive manual verification. Third, the process does not scale: a bank with 5,000 SME borrowers cannot manually process 5,000 unique Excel returns and reconcile them into EBA Pillar 3 templates or SFDR PAI calculations.

The European Commission’s Recommendation explicitly addresses this. It encourages financial institutions, financial market participants, insurance undertakings and credit institutions to base their sustainability data requests on the VSME rather than proprietary questionnaires. This is not a legal obligation, but it establishes a clear institutional signal: the VSME is the intended reference point for SME ESG data exchange.

How VSME data flows into financial regulation

The Comprehensive Module was not designed as an academic exercise in ESG coverage. Its disclosures were built to satisfy specific regulatory datapoints that financial institutions need. During the September 2024 workshops with banking associations, four additional datapoints were confirmed as essential and integrated into the standard: radioactive waste, female-to-male management ratio, exclusion from EU reference benchmarks, and GHG intensity. Four other bank-proposed datapoints were dropped as unnecessary: energy production, vehicle fleet emissions, employee disability data, and water intensity.

VSME to regulatory datapoint mapping

The table below maps VSME disclosures to the specific regulatory instruments they serve. This mapping is based on EFRAG’s Annex 7 (Basis for Conclusions), which provides a detailed comparison of SFDR, Benchmark Regulation and Pillar 3 datapoints against both VSME and ESRS Set 1.

What banks confirmed they need — and what they dropped

EFRAG’s public consultation and the September 2024 banking workshops produced a clear picture of what financial institutions actually require from SME counterparts. The result was a pragmatic standard shaped by real data demands rather than theoretical completeness.

This consultation-driven approach means the VSME avoids the common flaw of ESG standards: asking for data that no one uses. Every Comprehensive Module datapoint exists because a financial institution confirmed it needs the information for regulatory compliance or risk assessment.

The XBRL advantage: machine-readable from source

For institutions collecting data at scale, the most significant operational change is the XBRL taxonomy. EFRAG’s Digital Template produces Inline XBRL reports that are both human-readable and machine-processable. This means a bank can automate the ingestion of VSME data from SME counterparts directly into its data systems — no manual extraction, no PDF parsing, no reconciliation of inconsistent spreadsheet formats.

The taxonomy is open-source (MIT licence), vendor-independent and designed for integration. Any platform provider can build on it, and EFRAG has signalled that it will provide guidance on taxonomy extensions for bank-specific or jurisdictional additional disclosures. The February 2026 release (version 1.2.0) supports 11 EU languages and includes a data migration tool for moving data between template versions.

However, the current EFRAG template has limitations for institutional users: it supports only single-entity, single-period reporting and has no portfolio aggregation capability. For a bank managing hundreds of SME relationships, the template serves as a reference implementation — the operational solution requires a platform that can collect, validate and aggregate VSME data across the full portfolio. At Generation Impact Global, this is exactly what our platform delivers.

What this means for asset managers under SFDR

Asset managers reporting under SFDR need principal adverse impact (PAI) data at the investee level. For private equity and private debt funds with SME investees, this has been particularly challenging — unlisted companies had no standardised disclosure format. The VSME Comprehensive Module now provides a structured source for the majority of PAI Table 1 indicators, including GHG emissions, fossil fuel exposure, biodiversity impacts, gender pay gap, human rights violations, anti-corruption data and board diversity.

The practical implication is that fund managers can now include VSME reporting as a condition of investment agreements, knowing that the standard is proportionate enough for SMEs to comply with and comprehensive enough to feed SFDR calculations. This reduces the reliance on estimated data and proxy models, improving the credibility of PAI disclosures.

The value chain cap and Omnibus I

The Omnibus I simplification package (February 2025) proposed a “value chain cap” that would limit the sustainability data large companies can request from SMEs in their supply chains. While the legal cap is set by the ESRS LSME standard (for listed SMEs), the VSME is expected to serve as the de facto limit for non-listed SMEs. EFRAG’s analysis confirmed that the VSME covers the reasonable expectations of ESRS preparers for value chain data, except for certain sector-specific metrics like GHG removals, microplastics and substances of concern.

For banks and corporates, this means the VSME defines the practical ceiling of what you can expect from SME counterparts. Designing your data collection processes around this ceiling — rather than aspirational questionnaires that SMEs cannot complete — will improve response rates, data quality and operational efficiency.