VSME Explained: The Voluntary SME Standard for Carbon and ESG Disclosure

When a large European company asks its small-company supplier for ESG data, something awkward happens. The large company is bound by the CSRD and reports against the full ESRS — several hundred disclosure points, double materiality assessments, value-chain emissions. The small company has maybe five people, one accountant, and no idea what "double materiality" means. Asking them for an ESRS response is absurd.

EFRAG's Voluntary Standard for non-listed SMEs (VSME) is the answer. It is a right-sized, proportionate disclosure framework designed specifically for small companies — either because they want to disclose voluntarily, or because a larger counterparty is asking. This post explains what VSME requires, how it differs from ESRS, and why the 2025 CSRD Omnibus revision made VSME more relevant to more companies, not less.

This is the third post in a series. Post one reported our own 2025 carbon footprint (8.6 tonnes, mostly flights). Post two toured the Footprint Manager tool we built to produce it. This one zooms out to the methodology that gives the whole exercise its shape.

Where VSME fits

ESG disclosure in Europe is a layered system:

• CSRD / ESRS — mandatory for companies above post-Omnibus thresholds (1,000+ employees and €450M+ turnover, as of the 2025 revision). Hundreds of disclosure points, double materiality, third-party assurance required.
• VSME — voluntary for non-listed SMEs below CSRD thresholds. Two modules (Basic + Comprehensive) covering ~30 disclosure points total.
• Industry-specific regimes — Battery Regulation (Digital Battery Passport), ESPR (Ecodesign for Sustainable Products, with Digital Product Passport), CBAM (Carbon Border Adjustment). These sit alongside CSRD/VSME, not under them.

VSME was adopted by EFRAG in late 2024 as a finalised, non-draft standard. It is explicitly not a simplified ESRS — it is a different document that borrows structural concepts (materiality, Scope 1/2/3, disclosure tables) but trims the detail to fit SME operational reality.

The Basic Module

The Basic Module is the floor. If a company discloses under VSME at all, it discloses at least the Basic Module. Six sections:

B1 · Basis of preparation

Who is reporting, for what period, what is the organisational boundary (control, equity share, operational), what standard is being followed, what is explicitly excluded. This is where you write "Regen Studio BV, calendar year 2025, control boundary, voluntary disclosure aligned with EFRAG VSME".

B2 · Practices for transitioning toward a more sustainable economy

Narrative description of climate, nature, circular-economy, and social practices. No numerical requirement — just a readable account of what the company actually does. For a one-FTE consultancy this is a paragraph; for a 200-person manufacturer it is several pages.

B3 · Energy and GHG emissions

The carbon-footprint section. Total Scope 1 + Scope 2 (with dual reporting: location-based and market-based), and — if the company has material Scope 3 — the material Scope 3 categories. Energy consumption in MWh by source, with renewable share. IPCC AR6 GWPs are the expected default.

B4 · Pollution

Air, water, and soil pollutant releases if the company is subject to a relevant permit or release register. Most small service businesses answer "not material" with a basis. Manufacturers fill this in.

B5 · Biodiversity

Whether the company operates at sites in or near biodiversity-sensitive areas. For a home office, "not material". For a forestry or agricultural SME, this is a central disclosure.

B6 · Water

Water withdrawal and (for sites in water-stressed areas) consumption. Most service SMEs answer "not material" with a basis.

B7 · Resource use, circular economy, waste

Waste generated by weight, recycling rate, any circularity practices in product design or procurement. For a DPP consultancy this is interesting to answer about one's own operations, not just about clients.

B8 · Workforce — general

Headcount, gender breakdown, turnover, health and safety incidents. Proportionate for company size.

B9 · Workforce — health and safety

Fatalities, recordable incidents, incident rates. For office work this is a short section; for construction or manufacturing it matters.

B10 · Workforce — remuneration and training

Pay gap, average training hours, collective-bargaining coverage. Again, proportionate to workforce size.

B11 · Business conduct

Anti-corruption, whistleblowing, governance structure. For a single-director BV this is a paragraph describing the governance set-up.

The Comprehensive Module

The Comprehensive Module is optional and additive. If a company chooses to disclose it, they add on top of Basic. This is where investors, lenders, and larger counterparties start looking when the SME wants to differentiate on ESG.

C1 · Strategy — business model and sustainability-related initiatives

Narrative strategy: how sustainability is embedded in how the company makes money. Is there a transition plan? Are there climate-related products or services?

C2 · Practices for managing material sustainability matters

The company's actual ESG management practices — policies, responsibilities, measurement, targets. This is where "we have a reduction target of −40% by 2027 against a 2025 baseline" goes.

C3 · Future financial risks and opportunities

Climate-related financial risks (physical risks, transition risks) and opportunities. Scenario analysis is encouraged but not required at the depth ESRS E1 mandates.

C4 · Targets

Quantitative reduction targets with baseline year, target year, scope, and scenario alignment (1.5°C pathway, SBTi, national NDC).

C5 · Workforce — human rights and collective bargaining coverage

Human-rights policy, due diligence, collective-bargaining statistics. Proportionate to company size.

C6 · Severe negative human-rights incidents

Binary disclosure with narrative if any occurred.

C7 · Revenue from controversial activities

Whether revenue comes from controversial weapons, tobacco, fossil fuels, or other excluded sectors. For most SMEs this is a line saying "none".

C8 · Gender diversity ratio on governing body

Composition of the board or equivalent governance body.

C9 · EU Taxonomy alignment (optional)

Taxonomy-aligned turnover, capex, opex as a share of total. Only SMEs with capital-markets exposure typically bother.

How materiality works under VSME

One of the most important simplifications in VSME versus ESRS: there is no double-materiality exercise. VSME uses single materiality — a topic is material if it is relevant to the company's business, either financially or through significant impact. No impact-vs-financial quadrant analysis, no stakeholder consultation matrix.

But — and this is the part many first-time filers miss — "not material" is a full-weight disclosure that requires a written basis. You cannot leave B5 Biodiversity blank because "we do not have any biodiversity". You write: "Regen Studio BV is a service-based consultancy operating from a home office in São Paulo. It has no sites in or adjacent to biodiversity-sensitive areas per the EU protected-sites register. Biodiversity is not material to operations." That paragraph is the disclosure.

This is what makes VSME credible despite being shorter. An SME that writes "not material" ten times without bases has a visibly hollow report. An SME that writes crisp, defensible not-material bases for the ten topics that genuinely do not apply is doing exactly what the standard asks.

Scope 2 dual reporting — the rule nobody reads

One technical point worth dwelling on, because it trips up most first-time filers: VSME (aligned with GHG Protocol Scope 2 Guidance) requires dual reporting of electricity emissions.

• Location-based — what the local grid emits on average, per the national/regional grid emission factor.
• Market-based — what your specific supplier contract emits, accounting for any supplier-specific product (green tariff, PPA, unbundled REC/GoO/RECS).

If you have bought a green-tariff contract, your market-based figure can be zero (or near-zero) for that slice of electricity. But the location-based figure still reflects the physical grid you draw from. Both numbers are reported. The total uses the market-based figure per GHG Protocol convention — but the location-based number sits alongside for honesty.

For countries without a formal residual-mix system (e.g. Brazil, which does not operate an AIB-style tracking regime), the GHG Protocol Scope 2 Guidance specifies that location-based grid average is used as the market-based figure too. No greenwashing by claiming "100% renewable" through a contractual instrument that does not exist.

Inline XBRL — the machine-readable layer

The EFRAG VSME taxonomy defines XBRL tags for every disclosure point in the Basic and Comprehensive modules. When the HTML report is produced as inline XBRL (iXBRL), every number in the document is wrapped in a machine-readable tag that a regulator, counterparty, or procurement tool can extract without scraping.

This matters because it changes the economics of supplier ESG data. A CSRD-reporting company collecting supplier data from 500 SMEs cannot manually read 500 PDFs. If those 500 PDFs are iXBRL-tagged, a script extracts the Scope 1/2/3 numbers in seconds. The alternative — opaque PDFs or incompatible spreadsheet formats — creates exactly the burden that VSME was designed to avoid.

Why Omnibus made VSME more important

The February 2025 CSRD Omnibus raised the employee threshold from 250 to 1,000 and added a €450M turnover requirement. Many companies that had been gearing up for CSRD compliance now fall below the threshold. This is not a free pass — they still face:

• Supplier-chain pressure. Their CSRD-reporting customers still need supplier-level Scope 3 data.
• Procurement requirements. Public procurement and large corporate procurement increasingly specify ESG disclosure as an entry requirement.
• Investor and lender expectations. Sustainability-linked loans, green bonds, and ESG-oriented investors still want disclosure, regardless of CSRD scope.
• Upstream regulatory pressure. Battery Regulation, ESPR, CBAM each carry product-level and supplier-level data requirements that bite regardless of company size.

For these now-out-of-scope companies, VSME is the natural disclosure shape. It is respected by counterparties, aligned with GHG Protocol and IPCC standards, and proportionate to SME operational capacity. Climbing to full ESRS is unnecessary; staying silent is increasingly expensive.

What "good" looks like

A good VSME disclosure, in our view:

• Uses ranges, not points, for every emission figure. A single-point Scope 3 number is a fiction.
• Sources and dates every emission factor, with a quality rating. "0.45 kg CO₂e/kWh" is not an answer; "0.45 kg CO₂e/kWh per IEA 2023 Brazil grid factor, quality rating B" is.
• Reports Scope 2 both ways, location-based and market-based, with the dual rows visible.
• Writes "not material" bases explicitly, rather than leaving sections blank.
• Includes a reduction target with baseline year, target year, and a reference pathway (1.5°C, SBTi, national NDC).
• Is machine-readable as iXBRL, not just a PDF.
• Keeps a factor hash / audit receipt so the calculation is reproducible a year from now.

This is what the Footprint Manager produces, and what our own 2025 disclosure demonstrates end-to-end.

Where to go from here

If you are an SME wondering whether to start disclosing: the short answer is yes, sooner rather than later. Not because you are obligated, but because the procurement, lending, and investor environment is moving quickly and a ready VSME-aligned answer is a competitive advantage.

If you are a CSRD-scope company trying to collect supplier data: pointing suppliers at VSME — rather than a custom questionnaire — is the most collaborative move you can make. It gives them a stable target, respected by the market, and the iXBRL output integrates with your own systems.

If you are a consultant or accountant building an SME ESG practice: VSME is the natural service offering. It is defined, tractable, and recurring. The Footprint Manager we built is designed to support exactly that workflow.

Questions about applying VSME to your own organisation or client work? info@regenstudio.world.