Voluntary Standard, Mandatory Consequences: What the EU's New Sustainability Reporting Framework Means for Smaller Businesses
On 6 May 2026, the European Commission published a draft Delegated Regulation establishing a sustainability reporting standard for voluntary use by undertakings with up to 1,000 employees. The standard implements the legal mandate created by the Omnibus I Directive (2026/470) and is based on the VSME Recommendation (2025/1710), which endorsed the VSME standard developed by EFRAG and submitted to the Commission in December 2024.
The regulation serves two distinct but closely connected purposes.
A voluntary reporting framework, designed for proportionality
The first objective is to provide smaller undertakings, including micro-enterprises, self-employed individuals, and non-incorporated businesses, with a standardized, proportionate framework for disclosing sustainability information. The standard covers the same sustainability issues as the European Sustainability Reporting Standards (ESRS) used by large companies, but is designed to be significantly simpler and lighter.
It is structured in two modules. The Basic Module (disclosures B1 to B11) includes general company information, environmental metrics covering energy consumption and GHG emissions (Scope 1 and location-based Scope 2, following the GHG Protocol Corporate Accounting and Reporting Standard), pollution, biodiversity, water withdrawal, waste and circular economy, as well as social metrics on workforce characteristics, health and safety, remuneration, collective bargaining and training, and a governance disclosure on corruption and bribery convictions.
The Comprehensive Module (disclosures C1 to C9) adds datapoints likely to be requested by banks, investors, and corporate clients. These include business model and strategy descriptions, GHG reduction targets and climate transition plans, climate risk assessments, human rights policies and incidents, revenues from activities in sensitive sectors (prohibited weapons, tobacco, fossil fuels, chemicals), and gender diversity of governance bodies.
Applying the Basic Module is a prerequisite for applying the Comprehensive Module. Undertakings cannot select individual disclosures from the Comprehensive Module without first completing the Basic Module in its entirety.
For undertakings with 10 employees or fewer, several environmental disclosures that are necessary for larger companies, including total energy consumption, GHG emissions, water withdrawal, waste data, and circular economy reporting, become voluntary. This means that micro-enterprises using the standard are not required to report on these metrics, and large companies cannot demand them through the value chain cap.
The value chain cap: a legal limit on data requests
The second, and arguably more consequential, objective is the introduction of the "value chain cap." Under the Omnibus I Directive, large undertakings subject to mandatory CSRD reporting are prohibited from requiring sustainability information from protected undertakings (those with 1,000 employees or fewer) that exceeds what is specified in this voluntary standard. Protected undertakings have a statutory right to refuse requests that exceed those limits.
The cap applies specifically to information gathering carried out for the purpose of sustainability reporting under the Accounting Directive. It does not affect contractual obligations or information requirements stemming from other EU or national law. It also does not prohibit the voluntary sharing of information that is commonly shared among undertakings in a given sector.
When a large reporting undertaking requests information that exceeds the standard, it is legally required to inform the smaller partner of two things: which specific information exceeds the voluntary standard, and that the smaller partner has the statutory right to decline to provide it.
The cap covers only disclosures marked as "necessary" in the standard. Disclosures marked as "voluntary," "necessary if applicable," or "consideration when reporting sector information" fall outside the cap, meaning that large companies may request them but cannot require them.
What the standard requires in practice
Under the Basic Module, undertakings with more than 10 employees are required to disclose total energy consumption in MWh, with a breakdown between renewable and non-renewable sources for electricity and fuels where obtainable. They must report estimated absolute gross Scope 1 and location-based Scope 2 GHG emissions in tCO2eq. On the social side, the standard requires disclosure of workforce headcount by gender and contract type, the number and rate of recordable work-related accidents, whether employees are paid at or above applicable minimum wage, the percentage of employees covered by collective bargaining agreements, and average annual training hours per employee.
If the undertaking chooses to report Scope 3 emissions, it should refer to the 15 categories identified by the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. Scope 3 reporting is particularly recommended for SMEs operating in manufacturing, agrifood, real estate, construction, and packaging.
Gender pay gap reporting under the standard follows the threshold established by the Pay Transparency Directive: it applies to undertakings with 150 or more employees, reducing to 100 employees from June 2031.
Under the Comprehensive Module, if the undertaking has established GHG reduction targets, it must disclose the target year, base year, units, the scope coverage, and a list of main actions to achieve those targets. If it operates in high-climate-impact sectors (NACE Sections A to H and Section M) and lacks a transition plan, it must indicate whether and when it plans to adopt one.
The reconciliation with financial regulation
Appendix C of the standard maps specific disclosures to the data needs of financial market participants under the SFDR, EBA Pillar 3, and the Benchmark Regulation. This is not incidental. By reporting specific metrics such as energy breakdown, GHG emissions, proximity to biodiversity-sensitive areas, hazardous waste, work-related accidents, and gender pay gap, smaller undertakings directly fulfill disclosure requirements that their banks and investors face under these regulations. This makes the reporting company a more transparent, lower-risk counterpart in sustainable financing relationships.
Timeline and application
The value chain cap applies from financial years beginning on or after 1 January 2027. The voluntary standard itself is available for use from the date of entry into force of the regulation. Undertakings applying the standard are not required to seek external assurance for the information they report.
Why it matters
The standard codifies a boundary in the flow of sustainability data through European supply chains. Until now, the pressure on smaller businesses to provide sustainability information has been largely unstructured, driven by the individual requirements of large corporate clients, each with their own questionnaires and formats. This regulation replaces that fragmented landscape with a single, legally anchored framework.
For smaller companies, the practical implication is clear. By adopting the standard, they can satisfy the data needs of their largest clients, banks, and investors through a single, proportionate report, while retaining the legal right to refuse requests that go beyond it. For companies that do not adopt it, the pressure from uncoordinated requests is likely to continue, but the existence of the cap still limits what can be formally required of them.
The broader signal is that the EU's sustainability reporting architecture is maturing. The CSRD established the obligation for large companies. The Omnibus I Directive recalibrated the scope and simplified the requirements. This voluntary standard completes the picture by defining what the system expects from the rest of the value chain, and what it explicitly does not.
Is your company preparing for voluntary sustainability reporting?
The VSME standard gives smaller companies a practical framework for sustainability disclosure — whether responding to value chain requests or getting ahead of future regulatory requirements. If you are assessing where to start, we can help you navigate the right scope and approach.
→ Book a complimentary 30-minute VSME Assessment Session
In this session, we will:
• Determine which VSME module is most relevant to your company's situation
• Clarify what your value chain partners can legitimately request from you
• Map the key steps to implement a proportionate and credible reporting approach
No obligation. If we're not the right fit for your situation, we'll tell you.
