From exposure draft to recommendation: how the VSME standard evolved

The VSME standard that exists today — two modules, 20 disclosures, no materiality assessment, an “if applicable” principle — looks nothing like the version EFRAG first put out for consultation. The journey from a three-module exposure draft with a full materiality requirement to the streamlined Commission Recommendation adopted in July 2025 was shaped by 311 survey respondents, 164 field test participants, 22 comment letters and two targeted workshops with banking and SME associations. Every major structural decision in the final standard can be traced to specific feedback from that process.

This article reconstructs that evolution — not as institutional history, but as a practical guide to understanding why the VSME works the way it does and where it may change next.

The due process: three years from concept to recommendation

What the consultation revealed

The public consultation produced three messages that fundamentally reshaped the standard. First, the materiality analysis had to go. Both preparers and users flagged it as the single largest cost driver — too complex for SMEs to execute credibly, and too unreliable for banks to trust the results. Second, the Narrative-PAT module was unworkable. Its narrative disclosures were difficult for SMEs to prepare and impossible for data users to compare across respondents. Banking associations explicitly preferred semi-narrative YES/NO formats over open-ended narrative text. Third, the standard needed a digital ecosystem — an online template, calculators and a central data repository — to achieve the market acceptance that would make it a credible replacement for proprietary questionnaires.

The field tests added operational detail. Disclosures B3 (energy and GHG) and B7 (waste and circularity) were rated “highly difficult” by roughly a third of preparer participants. C3 (GHG targets) and C4 (climate risks) scored even higher difficulty ratings. Materiality emerged as the single largest operational challenge across all field test responses. These findings directly informed the decisions to simplify environmental disclosures, remove materiality and restructure the module architecture.

How the structure changed

The exposure draft had three modules: a Basic Module, a Narrative-PAT Module and a Business Partners Module. The final standard has two: Basic and Comprehensive (formerly Business Partners). The transformation involved deleting an entire module, redistributing its salvageable elements, renaming the remaining module, and adding datapoints that banks confirmed they needed.

Key changes disclosure by disclosure

The table below tracks the most significant changes from the exposure draft to the final standard. Each change was driven by specific consultation feedback.

The cost-benefit equation

EFRAG’s cost-benefit analysis found that the revisions — particularly the removal of materiality and narrative disclosures — reduced reporting costs for preparers compared to the exposure draft. The CBA’s central scenario projected that net impacts become positive from the third year of implementation, as the cost of filling in one standardised report is offset by the elimination of multiple bespoke questionnaires. A sensitivity analysis confirmed that net impacts remain neutral to positive even in the first year.

The SRB considered whether a re-exposure was necessary given the scale of changes. They concluded that the supplementary workshops with banking and SME associations, combined with the consultation and field test evidence, had sufficiently validated the revised structure. No re-exposure was conducted.

Where the standard may change next

The VSME is not frozen. Three developments may trigger revisions. First, the Omnibus I package proposes a voluntary delegated act based on the VSME — but the Commission has not excluded the possibility of changes during that process. Second, the Platform on Sustainable Finance is developing a streamlined EU Taxonomy for non-listed SMEs. The SRB removed a placeholder for this from the final standard pending clarity on its content, but recommended the Commission insert it once the simplified taxonomy is finalised. Third, the ESRS LSME standard (for listed SMEs) has not yet been issued — its content may influence the VSME’s scope and the value chain cap.

For organisations implementing the VSME now, the prudent approach is to build data systems that can accommodate change. The disclosure structure may evolve, thresholds may shift and new datapoints may be added. Flexible, platform-based reporting infrastructure handles these changes as configuration updates rather than process redesigns.