VSME: The New ESG Standard for SMEs – Key Benefits

In recent years, sustainability has become a key factor in business success. However, for many small and medium-sized enterprises (SMEs), the sustainability reporting requirements imposed on large corporations represent a significant hurdle. To address this need, the European Financial Reporting Advisory Group (EFRAG) has developed the Voluntary Standard for non-listed SMEs (VSME), a new voluntary reporting standard designed for unlisted SMEs. This standard helps companies to structure their ESG reporting in a proportionate and simplified way, without the burdens of regulations intended for large companies.

But why should an SME adopt VSME? This article explores the key benefits of implementing it.

What is VSME and who does it apply to?

VSME is a voluntary reporting standard that provides a structured framework to help SMEs communicate their environmental, social and governance (ESG) performance. Unlike the mandatory standards for large companies under the Corporate Sustainability Reporting Directive (CSRD), the VSME has been tailor-made for SMEs, taking into account their limited resources and the need for a proportionate approach to sustainability.

Structure of the VSME

The VSME is divided into two modules:

• Basic Module: Covers minimum reporting requirements for SMEs, including data on energy, greenhouse gas emissions, water consumption, waste management, and social aspects such as occupational safety and governance.
• Comprehensive Module: Offers more detailed reporting, which is useful for SMEs that want to provide more information to their stakeholders, such as banks and investors.

The adoption of these modules is flexible and SMEs can choose the level of detail that best suits their needs.

 The Benefits of Adopting VSME

• Increased Access to Credit and Financing Opportunities

One of the most important aspects of VSME is its ability to facilitate access to finance. Banks and investors are progressively integrating ESG criteria into their credit and investment decisions. A company that uses VSME to report on its sustainability performance can demonstrate a transparent commitment to this area, increasing its attractiveness to financiers.

In addition, several banks have stated that the VSME could become a standard reference for assessing the ESG risk of SMEs seeking credit, simplifying the process and reducing compliance costs.

• Reduced Bureaucratic Burdens

One of the main problems for SMEs is the administrative overhead resulting from filling out numerous ESG questionnaires requested by customers, banks and investors. The VSME represents a harmonized solution, which can replace the different requests for information from stakeholders with a single standardized model.

In particular, the elimination of materiality analysis, which is required in other reporting standards, greatly simplifies the process for SMEs, allowing them to focus only on essential information.

• Better Market Competitiveness

SMEs that adopt VSME improve their competitive position vis-à-vis corporate customers and in the value chain of large companies. More and more large companies are requiring ESG data from their suppliers to align with the regulatory requirements of the CSRD. SMEs using VSME can meet these demands efficiently, avoiding the risk of being excluded from important business opportunities.

In addition, VSME helps companies improve their corporate image and build a sustainable brand, an element that is increasingly appreciated by consumers and investors.

• Better Risk Management and Greater Resilience

The adoption of VSME allows SMEs to better identify and manage environmental and social risks, increasing their resilience in the face of more stringent regulations and changes in markets. The systematic collection of ESG data allows you to identify areas for improvement and optimize business processes, leading to greater operational efficiency.

For example, monitoring energy consumption and emissions can help SMEs reduce operating costs and improve their energy efficiency.

• Conclusion

The adoption of VSME represents a strategic opportunity for SMEs, offering numerous benefits in terms of access to finance, reduction of bureaucratic burdens, improved competitiveness and risk management. In addition, the use of digital tools for reporting will make the process simpler and less burdensome.

Even though the VSME is a voluntary standard, its increasing acceptance by banks, investors, and supply chain companies could make it a de facto requirement for many SMEs looking for opportunities for growth and consolidation.

Investing in sustainability reporting today means preparing for the challenges of the future, with tangible benefits both economically and reputationally.