Understanding ESRS Standards: Technical Breakdown for SMEs
The European Sustainability Reporting Standards (ESRS) are at the heart of the EU’s Corporate Sustainability Reporting Directive (CSRD). For small and growing businesses (SMEs), these standards can look intimidating — long, detailed, and seemingly written for large corporations. But the ESRS are designed to ensure comparability and transparency across companies of all sizes, and many parts are fully adaptable to smaller organisations.
This guide explains what ESRS really are, how they’re structured, and how SMEs can use the Voluntary Standard for non-listed SMEs (VSME) to meet expectations in a practical, achievable way.
What Are ESRS?
The ESRS are the technical standards that define what companies must report under the CSRD. They are developed by the European Financial Reporting Advisory Group (EFRAG) and adopted by the European Commission. Their purpose is to create consistent, comparable, and verifiable sustainability information across the EU.
Large companies must report using the full ESRS set, but small and medium-sized businesses — even those not directly covered by CSRD — are increasingly expected to provide similar data to banks, investors, or large customers. The VSME Standard, published by EFRAG in 2024, provides a simplified framework based on the same principles as the ESRS but tailored for smaller businesses.
Learn more about the VSME framework →
ESRS Structure: Core Categories
The ESRS are grouped into three main categories:
1. Cross-Cutting Standards (ESRS 1–2)
These apply to all companies and define general principles, disclosure requirements, and the concept of double materiality — considering both how sustainability issues affect your business and how your business impacts society and the environment.
2. Environmental Standards (E1–E5)
Cover areas such as:
- E1: Climate Change – greenhouse gas emissions and energy use
- E2: Pollution
- E3: Water and marine resources
- E4: Biodiversity and ecosystems
- E5: Resource use and circular economy
These topics align directly with the VSME Basic Module environmental metrics.
3. Social and Governance Standards (S1–S4, G1)
Address workforce, human rights, business conduct, and governance structures:
- S1: Own workforce
- S2: Workers in the value chain
- S3: Affected communities
- S4: Consumers and end-users
- G1: Business conduct and ethics
Together, these form a full view of a company’s sustainability performance.
How SMEs Can Apply ESRS Through the VSME Standard
Under the VSME model, small businesses can adopt either:
- Basic Module – minimal disclosures across key environmental, social, and governance topics; or
- Comprehensive Module – additional detail often requested by banks, investors, or corporate clients.
This two-tiered approach allows flexibility:
- A micro business might only use Basic metrics (B1–B11) such as energy use, workforce data, and anti-bribery information.
- A medium-sized firm might add Comprehensive datapoints (C1–C9), like GHG reduction targets or gender diversity ratios.
By following these modules, SMEs can prepare sustainability reports that are consistent with ESRS expectations but scaled to their own size and capacity.
Why ESRS Matter for SMEs
Even if not legally required to report under CSRD, SMEs face growing data requests from:
- Large clients needing supply chain data
- Banks and investors performing sustainability assessments
- Public tenders requiring ESG proof
Aligning with ESRS helps SMEs:
- Win and retain contracts
- Improve access to finance
- Build internal awareness of risks and opportunities
- Reduce duplication by using standardised templates
Key Challenges and How to Simplify Them
| Challenge | Practical Tip |
|---|---|
| Understanding material topics | Start with your most obvious impacts — energy, waste, and workforce safety |
| Data collection | Use existing invoices, utility bills, and HR data |
| Limited staff | Assign a sustainability “champion” who coordinates inputs quarterly |
| Lack of digital tools | Begin manually, then consider automation once you understand data flows |
Many of these data points are already part of normal business records — you’re not starting from zero.
See how to report Scope 1 and 2 emissions step by step →
Frequently Asked Questions
Do SMEs have to use the full ESRS framework?
No. Only large or listed companies are legally required to apply the full ESRS. SMEs can use the voluntary VSME Standard, which mirrors ESRS principles but reduces complexity and data volume. Read our breakdown of VSME disclosures →
What’s the difference between ESRS and CSRD?
The CSRD is the law that mandates sustainability reporting; the ESRS are the rules defining how to do it. In short, CSRD tells you who must report and when, while ESRS tells you what to report. See the CSRD deadlines for SMEs →
How can small businesses collect the required data?
Most data can be drawn from normal business documents — invoices, payroll, or energy bills. SMEs can start manually and later adopt software tools to automate calculations such as emissions and waste. Learn how to collect data efficiently →
Are ESRS disclosures audited?
Large companies’ reports must be assured by an independent auditor. For SMEs using the VSME Standard, assurance isn’t mandatory but can improve credibility when sharing data with clients or banks. See how CSRD assurance works →
Key Terms
- CSRD: Corporate Sustainability Reporting Directive (EU 2022/2464)
- ESRS: European Sustainability Reporting Standards, defining detailed reporting topics
- VSME: Voluntary Sustainability Reporting Standard for SMEs (EFRAG, 2024)
- Double Materiality: Assessing both financial and impact materiality
- EFRAG: European Financial Reporting Advisory Group
Conclusion
The ESRS may appear complex, but their logic is simple: a shared European language for sustainability reporting. For small and growing businesses, the VSME Standard translates that language into something practical, proportionate, and usable today. Start small, focus on the data you already have, and build your reporting capacity year by year — no consultants required.
By aligning with ESRS principles early, SMEs can stay ahead of compliance expectations and demonstrate leadership in Europe’s sustainability transition.