VSME Basic and Comprehensive Module Comparison Chart

Introduzione

In an era where sustainability is no longer optional, the European Financial Reporting Advisory Group (EFRAG) unveiled the Voluntary Sustainability Reporting Standard for Non-Listed SMEs (VSME) on December 18, 2024. This initiative is a response to the mounting demands for structured, transparent, and accessible sustainability data from micro, small, and medium-sized enterprises (SMEs) across Europe. As an optional framework, the VSME aims to harmonize sustainability reporting practices while ensuring they are proportionate to the unique characteristics of SMEs.

This article delves into the technicalities, structure, methodology, cost-benefit implications, and stakeholder responses that shaped the VSME. It evaluates its potential impact on SMEs and the broader sustainability landscape in the European Union.

Background and Context

SMEs form the backbone of the European economy, accounting for over 99% of all businesses and employing two-thirds of the workforce​. However, they often face challenges in navigating sustainability reporting due to their limited resources and capacities. h3.article-subtitle.my_30 Why It Matters to Our Clients?

The Corporate Sustainability Reporting Directive (CSRD) mandates sustainability reporting for large enterprises. SMEs, though excluded from its scope, increasingly encounter pressures to disclose sustainability data from stakeholders, including banks, investors, and large corporate clients. The VSME was developed to address this gap, providing a voluntary, structured alternative that aligns with the European Sustainability Reporting Standards (ESRS) but is tailored to the scale and resources of SMEs​​.

Objectives of the VSME

The VSME is designed with the following objectives:

• Facilitate stakeholder engagemen: Enable SMEs to satisfy the ESG data needs of large companies and financial institutions, enhancing their access to value chains and green financing.
• Support sustainability management: Provide tools for SMEs to manage their sustainability challenges, ensuring resilience and competitiveness.
• Promote inclusivity in the sustainable economy: Encourage SMEs to actively contribute to Europe's transition to a sustainable and inclusive economic model​​​.

Structure of the VSME

The VSME framework is divided into two modules to cater to the diverse needs and capacities of SMEs:

• Basic Module

This module is the entry-level framework, covering:

• General disclosures such as company profile and sustainability practices.
• Environmental metrics like energy consumption, greenhouse gas (GHG) emissions, and resource use.
• Social metrics, including workforce health, safety, and training.
• Governance metrics such as anti-corruption measures​​.
• Comprehensive Module

Designed for larger SMEs or those with advanced sustainability practices, this module expands on the Basic Module by including:

• GHG reduction targets and climate transition plans.
• Detailed workforce characteristics and human rights policies.
• Governance metrics related to gender diversity and revenues from specific sectors​​.

Principles and Methodology

The preparation of sustainability reports under the VSME adheres to the following principles:

• Relevance and Comparability: Ensuring disclosures are meaningful and align with stakeholder expectations.
• Proportionality: Avoiding excessive burden on SMEs, particularly micro-enterprises.
• Consistency with Financial Reporting: Promoting coherence between financial and sustainability reports​​.

The methodology leverages feedback from public consultations, field tests, and extensive stakeholder engagement to refine disclosure requirements and ensure practical applicability​.

Cost-Benefit Analysis

1. Methodology

EFRAG commissioned a cost-benefit analysis (CBA) through Syntesia Prometeia. This study employed the EU Standard Cost Model, combining data from SME surveys, field tests, and economic literature to estimate both financial and qualitative impacts​​.

2. Key Findings

• Initial Costs: SMEs may face negative net impacts during the first year due to implementation costs.
• Long-Term Benefits: From 2027 onwards, recurring costs decline, and benefits increase, with net impacts turning positive. By 2028, the annual benefits are projected to exceed €2.6 billion​​.
• Harmonization Gains: The VSME aims to replace disparate ESG questionnaires, reducing administrative burdens for SMEs.
• Access to Finance: Improved transparency facilitates access to green financing and strengthens SMEs’ value chain participation​​.

Practical Applications: Examples

Example 1: Energy and GHG Reporting for a Micro-Enterprise

A micro-enterprise in manufacturing uses the Basic Module to report:

• Total Energy Consumption: 1,200 MWh (60% renewable).
• Scope 1 Emissions: 200 metric tons of CO₂.
• Scope 2 Emissions: 50 metric tons of CO₂ from purchased electricity​​.

This transparency enhances relationships with corporate clients under the CSRD who seek aligned suppliers.

Example 2: Workforce Metrics for a Small IT Firm

A 30-employee IT firm uses the Basic Module to disclose:

• Workforce Composition: 50% women, 30% from underrepresented groups.
• Training Programs: 100% of employees attended cybersecurity workshops.
• Safety Metrics: Zero workplace injuries reported​.

The report demonstrates commitment to social responsibility, aiding in talent acquisition and investor interest.

Example 3: Comprehensive Reporting for a Medium-Sized Logistics Firm

A logistics company with 150 employees employs the Comprehensive Module:

• GHG Reduction Targets: A 20% reduction in emissions by 2030 through fleet electrification.
• Human Rights Policy: A documented approach to fair treatment across supply chains.
• Governance Diversity: Women represent 40% of board members​.

Such disclosures help secure green financing and establish the firm as a sustainability leader.

Example 4: Anti-Corruption Measures in a Food Processing SME

A food processing SME reports:

• Anti-Corruption Training: All 120 employees underwent compliance training.
• Convictions: Zero convictions related to corruption​​.

This builds trust with stakeholders and mitigates reputational risks.

Example 5: Circular Economy Practices for a Medium Retailer

A retailer uses the Basic Module to report:

• Recycling Initiatives: Diverted 80% of waste from landfills through recycling programs.
• Resource Use: Reduced plastic packaging by 50% in two years​​.

The report appeals to eco-conscious consumers and investors.

Revisions and Feedback Integration

The VSME underwent significant revisions based on stakeholder feedback:

• Elimination of materiality analysis: Simplified reporting by removing the need for complex materiality assessments.
• Digital tools support: Stakeholders emphasized the importance of tools like GHG calculators and data repositories to streamline disclosures.
• Streamlined modules: The Basic and Comprehensive Modules were refined to balance detail with usability​​.

Stakeholder Perspectives

Feedback from consultations and field tests revealed:

• SMEs: Highlighted concerns about complexity and cost, particularly for micro-enterprises.
• Banks and Investors: Welcomed the standardization of data collection, which aligns with their ESG obligations under the CSRD.
• Large Corporates: Supported the VSME as a means to enhance supply chain transparency​​​.

Challenges and Recommendations

Despite its strengths, the VSME faces challenges, including:

• Market Acceptance: Broad adoption requires robust advocacy and capacity-building efforts.
• Tool Development: Affordable, user-friendly tools are essential to support SMEs in implementing the standard​.

To address these issues, EFRAG should prioritize partnerships with technology providers and industry bodies to facilitate tool development and training programs.

Conclusione

The VSME represents a landmark effort to integrate SMEs into Europe’s sustainability framework. By offering a proportionate, voluntary standard, it balances the need for comprehensive ESG reporting with the realities of SMEs' limited resources. With ongoing refinements and strong stakeholder support, the VSME has the potential to transform sustainability reporting for non-listed enterprises, driving progress towards a greener and more inclusive economy.

References

For readers interested in accessing the full VSME standard, related documents, and the underlying rationale behind its development, the following resources are available:

Voluntary Sustainability Reporting Standard (VSME): Link

VSME Basis for Conclusions: Link

Cost-Benefit Analysis Report: Link

EFRAG's Cover Letter on the VSME: Link

These resources provide detailed insights into the VSME's objectives, technical development, and the stakeholder feedback that shaped its final structure.

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