The text below is a reproduction and translation of an article by Bruno Caron, originally published in French on the CPEQ website.
Introduction
Since Donald Trump took office, the global political landscape has undergone a major transformation. U.S.-imposed tariffs and uncertainty surrounding the renegotiation of the Canada-United States-Mexico Agreement (CUSMA) have prompted local businesses to diversify their export markets.
Many of them will undoubtedly want to target the European Union (EU) market. The EU has been leading the global push for sustainability since the start of this decade with its landmark Green Deal. Therefore, Canadian firms looking to embed themselves within European value chains would be wise to establish a sustainability reporting framework scaled to their specific capabilities and resources.
The Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) developed by the European Financial Reporting Advisory Group (EFRAG) provides a clear framework for Canadian small and medium-sized enterprises (SMEs) to structure their sustainability practices and more effectively communicate their environmental, social and governance (ESG) impact.
Following the European Commission’s official recommendation, the VSME standard gained formal European recognition on July 30, 2025. This milestone promotes wider adoption and ensures consistent disclosure requirements for companies under the Corporate Sustainability Reporting Directive (CSRD). Furthermore, it aligns the ESG expectations of financial and economic stakeholders with the practical reporting capabilities of micro-enterprises and SMEs.
What is the purpose of the VSME standard?
The VSME standard is designed to facilitate access to simple yet relevant sustainability data on ESG factors. Based on market acceptance, it provides a standardized set of information intended to replace the multiple uncoordinated questionnaires and ESG data requests sent by business partners—such as financial institutions, investors and large corporate clients, when an SME is part of their value chain.
The VSME standard was developed as a practical response to the unique challenges and needs of small businesses. It provides a strategic framework that fosters foresight, stakeholder engagement and long-term value creation, helping companies become more inclusive and resilient to environmental challenges.
Who is the VSME standard intended for?
The VSME is a voluntary framework for micro-enterprises and SMEs whose securities are not traded on a regulated market in the European Union.
European legislation classifies SMEs into three categories—micro-, small- and medium-sized—based on their assets, revenue and average number of employees during the fiscal year.
A company is considered “micro” if it does not exceed two of the following thresholds:
- €450,000 (CA$725,000) in balance sheet total;
- €900,000 (CA$1,450,000) in net turnover; and
- an average of 10 employees.
For a company to be considered “small,” the same rule applies, but the thresholds are as follows:
- €5 million (CA$8 million) in balance sheet total;
- €10 million (CA$16 million) in net turnover; and
- an average of 50 employees.
Finally, for a company to be considered “medium,” the following thresholds apply:
- €25 million (CA$40 million) in balance sheet total;
- €50 million (CA$80 million) in net turnover; and
- an average of 250 employees.
The VSME standard is intended for companies in all economic sectors.
How does the VSME work?
The VSME is structured around two building blocks: the Basic Module and the Comprehensive Module, also known as the “Narrative Module.” The Basic Module covers 11 data points (B1 through B11) and is primarily aimed at micro-enterprises. It defines the target disclosures that these companies are expected to meet, thereby establishing the baseline of ESG information that any SME needs to have in place before it can meaningfully claim to have sustainability goals.
Building on the Basic Module, the Comprehensive Module adds nine additional data points (C1 through C9) requiring narrative information on the company’s ESG policies, practices and targets that business partners, investors, and lenders typically want to see. An earlier draft of the standard actually referred to this as the Business Partners Module.
In practice, this module is designed to respond to the sustainability data requests that Canadian SMEs are already receiving or can expect to receive from European client companies who require this information from their suppliers. It also provides European financial institutions (banks, lenders and investors) with the specific data points they require to fulfil their obligations under applicable EU regulations.
The two modules work together: applying the Basic Module is a prerequisite for applying the Comprehensive Module. Together, they address a substantial proportion of the ESG data requests that SMEs are currently receiving. The table below summarizes the data points covered by each module:
| Basic Module | Narrative Module | ||
|---|---|---|---|
| B1 | Basis for preparation | C1 | Strategy: business model and sustainability–related initiatives |
| B2 | Practices, policies and future initiatives for transitioning towards a more sustainable economy | C2 | Description of practices, policies and future initiatives for transitioning towards a more sustainable economy (where applicable, i.e., where such practices have been reported under disclosure B2) |
| B3 | Energy and greenhouse gas emissions | C3 | GHG reduction targets and climate transition |
| B4 | Pollution of air, water and soil | C4 | Climate risks |
| B5 | Biodiversity | ||
| B6 | Water | ||
| B7 | Resource use, circular economy and waste management | ||
| B8 | Workforce–General characteristics | C5 | Additional (general) workforce characteristics |
| B9 | Workforce–Health and safety | C6 | Additional own workforce information–Human rights policies and processes |
| B10 | Workforce–Remuneration, collective bargaining and training | C7 | Severe negative human rights incidents |
| B11 | Convictions and fines for corruption and bribery | C8 | Revenues from certain sectors and exclusion from EU reference benchmarks (weapons, tobacco, fossil fuel and pesticides) |
| C9 | Gender diversity ratio in the governance body | ||
A VSME-based sustainability report does not need to be made public. It may be shared selectively, for instance with major client companies or financial institutions from which the reporting company is seeking financing. A company may also omit required information if it is classified under Appendix A of the VSME (e.g., national security information) or if it is commercially sensitive, provided that the omission is explicitly disclosed.
Finally, unlike the CSRD, which requires companies to assess materiality from two perspectives (commonly referred to as a “double materiality assessment” or DMA), the VSME operates on an “if applicable” principle. Under this approach, certain data points only apply in specific situations. For context, the DMA is a mandatory strategic process under the CSRD for disclosing material information on all major sustainability-related topics. It simultaneously assesses:
- the impacts of the company on people and the environment; and
- the financial risks and opportunities arising from sustainability matters.
Together, these two dimensions make up what is commonly known as “double materiality.”
What are the benefits of adopting the VSME for Canadian companies?
Directive (EU) 2026/470 (the “Omnibus I Directive”) came into force on March 18, 2026, with the aim of increasing the productivity of European companies and reducing their sustainability disclosure burden. Under this directive, CSRD-reporting companies are no longer permitted to request information from companies outside the CSRD’s scope that are in their value chain—for example, a Canadian company seeking to sell goods or services to a large European enterprise, beyond what is required under the VSME. Canadian companies that adopt the VSME will therefore be well-positioned to respond to sustainability information requests from their European clients while minimizing the amount of information they need to provide.
What tools are available to companies wishing to adopt the VSME?
The VSME includes three appendices. Appendix A includes the definitions of the terms used in the standard. Appendix B provides a list of possible sustainability issues and subtopics to help identify material issues for disclosure. Appendix C identifies the information required by the VSME to address the data needs of financial market participants subject to EU regulations, particularly the regulation on sustainability-related disclosures in the financial services sector of 27 November 2019 (SFDR).
EFRAG has also created a dedicated VSME website that contains information and resources on the standard and its application. Additionally, Annex 2 of the European Commission’s July 30, 2025 recommendation provides practical guidance to assist companies in applying the VSME.
EFRAG has published a digital Excel template on its website that companies can use to structure their VSME reporting. The template enables user-friendly data entry, including:
- interactive checkboxes and validations to determine which disclosures are required, based on conditions being met;
- auto-calculation of totals;
- validations and consistency checks using formulae and data validation;
- drop-down menus and checkboxes for semi-narrative disclosures;
- hyperlinks to the VSME text (at paragraph level) for each cell/column;
- colour-coding and tooltips for different categories of data points (e.g. Basic/Comprehensive Module, If Applicable); and
- a fuel-to-MWh converter.
The VSME website offers a tool that converts completed Excel templates into XBRL format, making them human- and machine-readable. This enables users to instantly generate sustainability reports that can be viewed in any web browser.
Conclusion
The VSME is the go-to voluntary reporting framework for micro-enterprises and SMEs looking to develop a sustainability strategy. It provides a common language for all companies pursuing a sustainability agenda, helping them to meet stakeholder expectations, attract investors and strengthen their brand. The VSME’s considerably lighter and more pragmatic approach sets it apart from other frameworks, such as the European Sustainability Reporting Standards (ESRS) and the International Sustainability Standards Board (ISSB) standards. Any Canadian SME looking to increase its presence in Europe would be wise to take a closer look.
