New EU Guidelines on SME Sustainability Reporting: What It Means for Supply Chains
Introduction
The European Commission has proposed major simplifications to sustainability reporting, significantly reducing the burden on small and medium-sized enterprises (SMEs). Under the new directive, SMEs in supply chains will only be required to report using the Voluntary SME Sustainability Standard (VSME), eliminating the need to comply with extensive CSRD or CSDDD requirements.
This shift is part of the EU’s effort to reduce administrative burdens by 25% while maintaining supply chain transparency and ESG compliance. In this guide, we break down what these changes mean for businesses and how SMEs can prepare.
What Is Changing in SME Sustainability Reporting?
Previously, SMEs supplying to larger corporations were indirectly pressured to provide sustainability data beyond what was legally required. Large companies often demanded full CSRD-compliant reporting from smaller suppliers to meet their own regulatory obligations. This trickle-down effect created unnecessary complexity and compliance costs for SMEs.
The new proposal removes this obligation by ensuring that SMEs only need to report on VSME, a simplified reporting standard developed by EFRAG. Key changes include:
- SMEs are not required to provide additional data beyond VSME.
- Large companies cannot request extra ESG disclosures from SMEs beyond what VSME mandates.
- The reporting process is simplified, with fewer data points and a structured voluntary approach.
What Is the VSME Standard?
The Voluntary SME Sustainability Standard (VSME) is a lightweight reporting framework designed to provide essential ESG data without overburdening SMEs. Developed by EFRAG (European Financial Reporting Advisory Group), this standard ensures that SMEs can meet the sustainability expectations of banks, investors, and supply chain partners without complex compliance requirements.
VSME includes:
- Basic environmental, social, and governance (ESG) metrics.
- A streamlined reporting format that aligns with EU sustainability goals.
- A standardized structure that makes it easier for SMEs to provide ESG information to large enterprises and financial institutions.
By following VSME, SMEs can continue operating within sustainable supply chains while avoiding the burden of detailed ESG data collection and auditing.
How This Affects Large Companies
For large corporations relying on SME suppliers, the changes limit the data they can request from smaller partners. Companies under CSRD or CSDDD obligations must now adjust their supplier ESG policies to align with VSME-only reporting.
What large companies need to do:
- Revise procurement policies to ensure that only VSME data is requested from SME suppliers.
- Adjust supplier sustainability frameworks to exclude excessive reporting demands.
- Implement digital tools to integrate VSME-based supplier data into ESG tracking systems.
This shift aims to balance regulatory compliance with supply chain efficiency, ensuring that SMEs remain competitive without unnecessary administrative burdens.
Benefits of the New VSME-Only Approach
For SMEs, these changes bring several advantages:
✅ Lower compliance costs – No need to produce detailed CSRD-level reports.
✅ Simpler reporting process – Focus on core sustainability metrics.
✅ Reduced burden from large buyers – No additional data requests beyond VSME.
✅ Increased transparency – Standardized ESG reporting for supply chains.
For larger companies, the benefit lies in a more efficient and scalable supplier compliance process. By aligning with VSME, businesses can maintain ESG integrity while ensuring that their supply chain remains cost-effective and legally compliant.
Next Steps for SMEs & Large Enterprises
For SMEs:
- Familiarize yourself with VSME reporting requirements.
- Implement a simple ESG tracking system to gather relevant data.
- Communicate with your buyers about the shift to VSME-only reporting.
For Large Enterprises:
- Update supplier contracts to reflect the VSME standard.
- Train procurement teams on the new reporting limits.
- Use automation tools to integrate VSME-compliant data into sustainability reporting.
Conclusion
The new EU sustainability reporting guidelines are a major win for SMEs, reducing compliance burdens while ensuring supply chain transparency. By adopting VSME, businesses can focus on sustainable growth without excessive regulatory pressures.
Looking for a way to streamline ESG reporting?Discover how Aravina helps businesses automate sustainability compliance and track supplier data efficiently.