Glossary: CSRD, VSME, ESRS Explained in Plain English

When it comes to sustainability reporting in the EU, the acronyms can feel overwhelming. Business owners and managers often hear CSRD, VSME, and ESRS mentioned — but what do they actually mean? This guide explains them in plain English, so you can see how they fit together and why they matter for small and medium-sized enterprises (SMEs). For more context, see what is CSRD reporting and our CSRD vs VSME explained guide.

Corporate Sustainability Reporting Directive (CSRD)

The Corporate Sustainability Reporting Directive (CSRD) is an EU law that requires companies to report on their environmental and social impacts.

• Large companies must publish detailed sustainability reports following the European Sustainability Reporting Standards (ESRS).
• SMEs are not directly in scope unless they are listed on a regulated EU stock exchange.
• Suppliers to large companies may still be asked for data. If your business sells to a bigger customer, you may receive CSRD-style questions.

CSRD is essentially the EU’s rulebook for sustainability transparency. Even if you are not directly covered, it influences what banks and major buyers will ask you.

Voluntary Sustainability Reporting Standard for SMEs (VSME)

The Voluntary Sustainability Reporting Standard for SMEs (VSME) is a simplified framework designed for smaller businesses. It helps SMEs share sustainability information in a credible, manageable way — without excessive paperwork.

There are two levels:

1. Basic Module — the minimum set of disclosures, covering essentials like:

   • energy use and emissions (from utility bills or fuel receipts),
   • waste and recycling,
   • workforce data (headcount, pay, health and safety),
   • governance basics (e.g. any convictions or fines for bribery).

2. Comprehensive Module — a fuller version, sometimes requested by banks or large customers. It adds details on strategy, targets, and risks such as climate exposure or governance diversity.

The VSME is voluntary. It has no legal force like CSRD, but it provides a recognised and proportionate way for SMEs to respond to requests from banks, investors, or corporate clients.

European Sustainability Reporting Standards (ESRS)

The European Sustainability Reporting Standards (ESRS) are the detailed rules that large companies must follow to comply with CSRD. They cover everything from climate change and pollution to workforce conditions and governance.

The VSME mirrors these topics but keeps them simpler and more practical for smaller businesses. This alignment means SMEs can answer questions from clients without needing to wade through hundreds of technical pages.

How They Fit Together

• CSRD → The EU law.
• ESRS → The technical standards large companies must use under CSRD.
• VSME → The voluntary, lighter framework for SMEs.

You can think of it as a pyramid:

• Top layer (CSRD) — Legal directive for large companies.
• Middle layer (ESRS) — The technical reporting standards.
• Bottom layer (VSME) — A simplified version for SMEs.

Why This Matters for SMEs

Even if your company isn’t legally required to report, the ripple effects are clear:

• Banks may ask for sustainability data before granting loans.
• Major customers may expect disclosures from suppliers.
• Public tenders may include sustainability requirements.

For example, a local furniture maker could be asked by IKEA for details on energy use, workforce conditions, or emissions. Having VSME data ready makes it easier to respond quickly and professionally.

By adopting the VSME Basic Module, SMEs can provide consistent answers — saving time and avoiding the need to create ad-hoc reports for each request.

Key Terms

• Corporate Sustainability Reporting Directive (CSRD) — The EU law requiring 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.
• Voluntary Sustainability Reporting Standard for SMEs (VSME) — A simplified framework for SMEs to report sustainability information. Voluntary, but useful for banks and clients.
• Basic Module — The minimum VSME disclosures, covering energy, emissions, waste, workforce, and governance.
• Comprehensive Module — An extended VSME set with more detail on strategy, risks, and targets.
• European Sustainability Reporting Standards (ESRS) — Detailed reporting rules that apply to large companies under CSRD. VSME is a proportionate version for smaller firms.
• SME (Small and Medium-sized Enterprise) — A business with fewer than 250 employees, turnover under €50 million, or a balance sheet total under €25 million.
• Scope 1 and Scope 2 emissions — Scope 1: direct emissions from fuel a company burns (e.g. vehicles, boilers). Scope 2: indirect emissions from purchased energy (e.g. electricity, heating).
• Turnover — The total income a company earns from normal business activities in one year.

Would you like me to also create a shorter summary version (like a one-pager cheat sheet) that SMEs could use as a quick reference?