Exploring The EFRAG VSME Standard in the EcoVadis Community

The European Financial Reporting Advisory Group (EFRAG) recently joined the EcoVadis Community for a dedicated session to deep-dive into the VSME Standard. As part of the Omnibus I package, the European Commission will adopt a Voluntary Standard based on VSME for businesses with less than 1000 employees. The EFRAG Team explored recent regulatory shifts, discussed the VSME digital template, and shared early insights into market acceptance of the VSME standard. Below are some key takeaways from that session.

The Evolutions of European Sustainability Regulation

The European sustainability reporting landscape is shifting. Recent regulatory updates have altered compliance requirements for many organizations, raising mandatory reporting thresholds for all businesses operating in the European Union.

The Corporate Sustainability Reporting Directive (CSRD) has changed its thresholds for reporting. Companies with just 250+ employees needed to report to it previously. From 2027, this has been raised to only those with over 1,000 employees and €450 million turnover. At the same time, higher Corporate Sustainability Due Diligence Directive (CS3D) thresholds have also been established. Now, only companies with more than 5,000 employees and €1.5 billion net worldwide turnover are required to report.

While these new updates legally exempt small and medium-sized enterprises (SMEs) from direct reporting, the reality for global supply chains remains unchanged.

This is because large global buyers and financial institutions still face strict environmental and social mandates of their own. To meet these obligations, they will continue to require detailed sustainability data from their smaller suppliers. Consequently, many companies that are technically outside the scope of the CSRD are being asked to complete overlapping sustainability questionnaires from their primary business partners.

To navigate this complexity without increasing administrative burdens, the EFRAG VSME standard provides a universally accepted blueprint for structured sustainability disclosure. This framework allows organizations to provide clear, structured data by incorporating elements such as the VSME digital template. This template ensures information is machine-readable and accessible, which may also simplify the process of completing the EcoVadis questionnaire.

Navigating Data Requests with the Value Chain Cap

Large organizations subject to the CSRD must collect sustainability data across their value chains. Without a standardized approach, requesting data from their suppliers can be complex. Detailed disclosures place a high administrative burden on smaller suppliers, who often lack the resources and infrastructure to accurately respond to individual requests.

To provide clarity and structure, the EU Commission introduced the Value Chain Cap. This feature defines the extent of data that large corporations can request from SME suppliers when the data is needed solely for reporting purposes. By establishing this limit, the cap ensures that smaller organizations are not expected to manage the extensive compliance requirements imposed by their larger buyers for CSRD reporting. 

The Value Chain Cap only applies to requests made strictly for CSRD reporting. It does not block companies from requesting data needed for everyday business operations or risk management. However, if an in-scope company requests extra CSRD data that goes beyond the cap, they must explicitly inform the supplier that they have the legal right to refuse the request. 

The Value Chain Cap also supports risk-based engagement on human rights, workplace safety and environmental metrics outlined by the revised guidelines for CS3D thresholds 2026. Rather than requesting multiple data points from SMEs, corporate buyers can focus on critical risk areas. For SMEs, aligning with this standard allows them to provide a single, consistent data package, reducing redundant inquiries on SMEs from multiple buyers and supporting stronger, more resilient commercial relationships.

Core Pillars of the EFRAG VSME Standard

During their recent interactive session within the EcoVadis Community, EFRAG experts outlined the foundational principles of the VSME Standard, which was designed and tested for companies with fewer than 250 employees. Rather than replicating the extensive requirements designed for larger organizations, the EFRAG VSME standard provides a structured approach built around three practical pillars.

1. The “If Applicable” Principle 

Traditional sustainability reporting frequently relies on complex materiality assessments to determine relevant topics. The VSME standard simplifies this process by introducing the “If Applicable” principle. This approach serves as a practical filter by providing the specific circumstances that trigger reporting. If an organization does not perform a specific activity, it can simply omit that disclosure. This immediately tells corporate buyers and regulators that the missing information is not applicable. For instance, an SME with production processes that significantly consume water has to disclose its water consumption. 

2. The Modular Reporting Structure 

The VSME standard uses a modular setup, allowing businesses to scale their reporting as their sustainability efforts grow. Once a company selects a module, it must complete that module entirely to prevent “cherry-picking” data. However, each item of disclosure shall be provided only when it is applicable to the undertaking’s specific circumstances.

It is also important to note that a business must complete the Basic Module before it can move on to the Comprehensive Module.

• The Basic Module serves as an entry-level framework designed specifically for micro-businesses. Written in plain language, it consists of 11 disclosures covering essential environmental, social and governance (ESG) metrics. While all 11 disclosures are technically required, any marked ‘if applicable’ only need to be completed if relevant to the business.
• The Comprehensive Module builds directly on top of the Basic Module to provide the deeper information that business partners often look for. It consists of nine additional disclosures shaped by Sustainable Finance Regulations, which are likely to be requested by banks, investors and larger corporate clients.

Finally, depending on the industry, a company could include additional sector-specific details (such as metrics or narrative disclosures) to give a complete picture of its sustainability efforts in that particular sector, as long as the quality characteristics of the information are respected.

3. VSME Digital Template and Excel to XBRL Converter 

To help organizations share their metrics in a standardized format, EFRAG provides a suite of digital tools alongside the text guidelines. This includes an accessible Excel-based reporting tool and a specialized Excel-to-XBRL converter to ensure data is also available in a machine-readable format.

The integration of XBRL provides a clear structure for supply chain transparency. Using the framework converts standard text and numbers into machine-readable formats. This enables sustainability data to be efficiently processed and evaluated by automated corporate procurement systems, reducing manual data-entry errors and supporting seamless information exchange between suppliers and global buyers.

Creating Clarity: EcoVadis ESG methodology alignment 

During the meeting, the EcoVadis team illustrated how VSME (or the future Voluntary Standard) can be used in combination with EcoVadis methodology. This methodology helps organizations structure internal documentation and compile evidence for building public VSME reports. Conversely, the environmental, social and governance data gathered for a VSME report provides many of the inputs required to complete the EcoVadis questionnaire. Utilizing both systems in tandem streamlines data management, eliminates duplicate reporting efforts and enhances overall data accuracy. Please note that this alignment methodology has been developed by EcoVadis without involvement of EFRAG and has not been verified or certified by EFRAG.

Conclusion: Building Resilience Amid Regulatory Change 

The evolution of European sustainability rules highlights the importance of ongoing sustainability programs for SMEs. Aligning with the EFRAG VSME Standard provides the visibility needed to manage corporate supply chain requests and build a resilient commercial model. 

The EcoVadis Community is a dedicated space for suppliers to discuss the critical topics that can measurably improve sustainability performance. Register to access the full EFRAG event replay, download implementation guides, and participate in the Regulation and Compliance Forum. 

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FAQs

Q: Who exactly is the EFRAG VSME standard designed for? 

A: The EFRAG VSME standard provides a structured reporting approach originally designed for small and medium-sized enterprises. This Standard will now be adopted by the European Commission as a Delegated Act as a Voluntary Standard for those companies with less than 1000 employees. It supports organizations seeking a clear, universally accepted format to provide sustainability data to corporate buyers or banks.

Q: How does the Value Chain Cap manage data requests for smaller enterprises? 

A: The Value Chain Cap defines the proportionate level of data a large corporate buyer can request from an SME supplier for CSRD reporting purposes. According to Omnibus I, the Value Chain Cap is set by the future Voluntary Standard (based on VSME) that the European Commission is set to adopt by the end of 2026. 

By establishing this limit, it ensures smaller organizations are not expected to manage the extensive compliance requirements of their larger partners, keeping data requests clear, standardized and focused on essential metrics. However, when data is needed for a managerial or risk management system, the value chain cap does not apply. 

Q: What is the VSME digital template and Excel-XBRL Converter, and how does it support reporting?

A: XBRL is a standardized digital language used to make financial and sustainability data machine-readable. With the VSME digital template, organizations can enter their data into a simple Excel file. From there, a built-in converter turns that file into a standardized “Inline XBRL” report. This format makes it easy for corporate software systems and databases to read and process the information. This reduces manual data entry and supports a seamless exchange of information between suppliers and global buyers.

Q: Can I use my EFRAG voluntary standard disclosures within my EcoVadis assessment? 

A: Yes. EcoVadis has developed a similar methodology, so structuring your data using the EFRAG VSME framework naturally supports alignment with EcoVadis’s ESG methodology. The data points and environmental metrics required by the VSME modules may overlap with the evidence evaluated in an EcoVadis assessment. Conversely, the EcoVadis methodology helps organizations structure internal documentation and compile evidence that can be directly used to build public VS reports. Please note that this alignment has been developed by EcoVadis without involvement of EFRAG and has not been verified or certified by EFRAG.