EU CSRD and ESRS LSME and VSME reporting for SMEs

LSME is the listed-SME track. The CSRD amends the Accounting Directive so that small and medium-sized undertakings, except micro-undertakings, whose securities are admitted to trading on an EU regulated market are in scope for sustainability reporting. Those undertakings may limit reporting to specified SME information and report under sustainability reporting standards for small and medium-sized undertakings.

VSME is the voluntary SME track. It is aimed at SMEs that are not subject to mandatory CSRD sustainability reporting but still need a proportionate way to answer sustainability information requests from large companies, financial institutions, customers, banks, investors, or other stakeholders.

The listed-SME opt-out matters only for SMEs in the CSRD listed-SME category. The CSRD text says that, for financial years starting before 1 January 2028, the relevant small and medium-sized public-interest undertakings may decide not to include the sustainability information in their management report.

That opt-out is not silent non-reporting. If used, the undertaking must briefly state in its management report why the sustainability reporting was not provided. A listed SME should therefore track whether it is relying on the opt-out, where the explanation appears, and when the opt-out window ends for its reporting calendar.

A non-listed SME should use VSME as a voluntary response framework, not as a new mandatory CSRD obligation. The Commission says the voluntary standard is intended to reduce administrative burden by helping SMEs respond to sustainability information requests from large companies and financial institutions that are themselves subject to mandatory CSRD reporting.

The practical use is to standardize the SME's answers, keep repeatable evidence behind them, and avoid bespoke questionnaires expanding beyond what is proportionate for an SME. The Commission also encourages large companies and financial institutions seeking sustainability information from SMEs to base requests on the voluntary standard as far as possible.

The main mistake is mixing the two tracks. A listed SME needs a CSRD scope and reporting analysis, including whether it can rely on the temporary opt-out and whether a proportionate listed-SME standard applies. A non-listed SME usually needs a voluntary reporting and customer-request strategy, not a statement that CSRD directly applies to it.

Teams should also avoid treating proposed or voluntary material as if it were already the same as binding CSRD reporting. The Commission's VSME Q&A says the future voluntary standard proposed under the Omnibus simplification package might differ from the current VSME Recommendation and depends on negotiations between co-legislators.