Glossary: CSRD, VSME, ESRS Explained in Plain English

Sustainability reporting can feel full of jargon. If you are a small or medium-sized enterprise (SME), the good news is you only need to understand the basics. Here are three of the most important terms explained in plain, straightforward language.

1. CSRD — Corporate Sustainability Reporting Directive

The CSRD is a European Union law. It requires large companies to publish reports on their environmental and social impacts. These reports cover areas like energy use, greenhouse gas emissions, workforce diversity, and supply chain practices.

For SMEs, the CSRD is not usually a legal requirement. However, your bank or large clients may ask you for CSRD-style data because they need it for their own reports. That’s why it matters to understand what CSRD is, even if you don’t report under it directly.

Example: A large retailer needs to report its supply chain emissions. It may ask its SME suppliers for fuel and electricity data so it can include them in its CSRD report.

2. VSME — Voluntary Sustainability Reporting Standard for SMEs

The VSME is a voluntary framework designed to make life easier for SMEs. It provides a clear and simple way for you to collect and share sustainability data when asked.

The VSME has two levels:

• Basic Module: The minimum set of data, such as energy bills, workforce size, and waste volumes.
• Comprehensive Module: A longer version that includes strategy, targets, and transition plans. Banks or large customers may sometimes ask for this.

Think of the VSME as a ready-made template. It shows you exactly what information to collect, saving time and helping you respond quickly to requests.

Example: A local bakery uses the VSME Basic Module to keep a file of electricity bills, waste invoices, and staff numbers. When its bank requests sustainability data, the bakery can send the file within minutes.

3. ESRS — European Sustainability Reporting Standards

The ESRS are the detailed rules that large companies must follow under the CSRD. They are very comprehensive and cover a wide range of environmental, social, and governance (ESG) topics.

SMEs do not need to use the ESRS. Instead, the VSME was created as a simpler, proportionate version for smaller businesses. Knowing the difference is important: ESRS is for big companies, VSME is for SMEs.

Example: A multinational bank must use ESRS to report on climate risks, diversity, and its lending portfolio. A small local café only needs to consider VSME Basic data like electricity use and number of employees.

Why This Matters for SMEs

Even if you don’t fall under CSRD rules, you may still receive requests for data. By using the VSME, you can provide information in a structured way, showing clients and banks that you are professional and reliable. This can help maintain contracts and even create new opportunities.

Key Terms

• Corporate Sustainability Reporting Directive (CSRD) — An EU law that requires large companies — and eventually some medium-sized ones — to report on their environmental and social impacts. Smaller suppliers are not directly in scope but may be asked for CSRD-style data by banks or bigger clients.
• Voluntary Sustainability Reporting Standard for SMEs (VSME) — A simplified framework designed to help SMEs share sustainability information. It is voluntary but can help SMEs respond to client or bank requests.
• Basic Module — The minimum set of sustainability disclosures under the VSME. It covers essential topics such as energy use, greenhouse gas emissions, waste, workforce data, and basic governance issues.
• Comprehensive Module — An extended version of the VSME reporting standard. It includes additional details on strategy, transition plans, and targets. Banks or large clients may request this level of detail.
• European Sustainability Reporting Standards (ESRS) — The detailed reporting rules that apply to large companies under CSRD. The VSME is a simplified, proportionate version for smaller businesses.
• SME (Small and Medium-sized Enterprise) — A business with fewer than 250 employees, a turnover under €50 million, or a balance sheet total under €25 million. Micro-enterprises are even smaller (fewer than 10 employees).
• Scope 1 and Scope 2 emissions — Scope 1 refers to greenhouse gas emissions from sources a company directly controls (like fuel used in company vehicles). Scope 2 refers to emissions from purchased energy (like electricity or heating). SMEs may only need to report these two.
• Turnover — The total income a company earns from its normal business activities, usually measured over one year.