The European Commission recently adopted a new sustainability reporting standard aimed at small and medium-sized enterprises (SMEs). Known as the Voluntary Sustainability Reporting Standard for SMEs (VSME), the framework is designed to simplify how smaller businesses disclose their environmental, social, and governance (ESG) data. Though positioned as a voluntary measure, the VSME’s adoption may carry ripple effects far beyond Europe’s borders, particularly for African businesses increasingly integrated into global value chains.
The VSME was developed by the European Financial Reporting Advisory Group (EFRAG), the body responsible for drafting Europe’s sustainability standards under the Corporate Sustainability Reporting Directive (CSRD). It introduces a two-tiered framework:
- Basic module that outlines 11 key disclosures, such as greenhouse gas emissions, anti-corruption measures, and workforce metrics.
- Comprehensive module that includes more advanced reporting on issues like transition plans, emissions reduction targets, and social impact initiatives.
The intention is to provide smaller companies with a lightweight yet structured approach to reporting, avoiding the burdensome complexity often associated with sustainability disclosure.
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While the VSME is not legally binding, its influence is expected to be significant. European regulators have made clear that large companies, banks, and institutional investors will be encouraged to use it as a guideline when requesting sustainability information from their SME partners. In effect, it sets a new ceiling: a maximum standard of ESG data that can be expected from small businesses, limiting excessive demands from larger entities while encouraging consistency and transparency.
The context behind the VSME’s emergence is also telling. Earlier this year, the European Commission introduced the Omnibus I package, a legislative overhaul designed to simplify the CSRD’s scope. Among its key proposals is a dramatic narrowing of the directive’s reach—from companies with 250 employees to those with over 1,000. This shift would exclude nearly 80% of EU companies from mandatory sustainability reporting. But with ESG becoming a prerequisite for doing business with investors, insurers, and procurement agencies, the EU hopes to bridge that gap through a robust and practical voluntary system—hence the VSME.
Although designed with European businesses in mind, the implications for Africa are both immediate and profound. SMEs are the backbone of the African economy, contributing more than 80% of jobs and the vast majority of production and trade across the continent. Many of these enterprises already supply goods and services to European markets, whether directly or as part of larger value chains. With the adoption of the VSME, European buyers are likely to begin requesting standardized ESG data from their African suppliers. In practical terms, this means that small businesses in Nairobi, Lagos, Dakar, or Addis Ababa may soon find themselves needing to align their operations with the VSME if they wish to remain competitive.
For some, this development represents an opportunity. The VSME’s Basic module avoids the most complicated aspects of ESG reporting, focusing instead on the indicators most demanded by banks and buyers. It offers SMEs a chance to engage with sustainability in a manageable, phased way. For African SMEs that have long lacked access to formal sustainability frameworks, the VSME could serve as a foundational tool—helping them attract green finance, formalize business practices, and gain visibility in an increasingly ESG-conscious marketplace.
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This opportunity is not without risks, the vast majority of African SMEs operate informally. Many lack the administrative capacity, digital tools, or financial literacy to engage in structured reporting. Even among formal enterprises, knowledge of ESG principles remains uneven. Without a concerted effort to localize, support, and implement a version of the VSME suited to African realities, there is a danger that the new standard could deepen inequalities—benefiting only those with existing access to capital, networks, and advisory services.
To avoid such an outcome, policymakers, financiers, and development actors across the continent will need to act swiftly. National governments could begin by translating the VSME into local languages and adapting it to regional regulatory contexts. Business associations, chambers of commerce, and trade networks could provide targeted training and offer ESG toolkits to their members.
Development banks might consider subsidizing ESG assessments or partnering with technology firms to create mobile-first reporting solutions tailored for African SMEs. At the same time, large African companies and banks that engage with SMEs as part of their supply chains have a role to play. By setting expectations aligned with simplified frameworks like the VSME—and by offering guidance and support—they can help build a more inclusive reporting ecosystem.
There are already signs of progress. Nigeria, for instance, has announced its intention to introduce phased ESG reporting requirements for certain SMEs by 2030, starting with climate-related risks and gradually expanding to include governance and labor indicators. Across the continent, UNCTAD and ISAR have worked with over two dozen African countries to establish voluntary sustainability reporting frameworks, many of which could be harmonized with international standards like the VSME. Development finance institutions, too, are beginning to integrate ESG metrics into credit evaluations, making the business case for disclosure stronger.
Still, much remains to be done. The VSME, though helpful in its simplicity, is ultimately a European construct. For it to succeed in Africa, it must be more than adopted—it must be adapted. That means taking into account the structural barriers African businesses face, from energy insecurity to regulatory fragmentation. It also means recognizing the vast diversity within Africa’s SME landscape: what works for an agro-processor in Ghana may not work for a fintech startup in Rwanda or a craft manufacturer in Malawi.
There is also the broader strategic question of African agency. While the EU’s move is commendable for recognizing the reporting burdens faced by SMEs, it also illustrates a deeper truth: sustainability standards are increasingly being set outside of Africa. If African institutions, policymakers, and business leaders do not participate actively in shaping these frameworks, they risk becoming passive adopters of external rules. This moment offers a chance to shift that dynamic—by not only aligning with global standards like the VSME, but by contributing African perspectives, data, and leadership to the next generation of ESG thinking.
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The European Commission has been cautious in describing the future of the VSME, suggesting that the framework may evolve depending on the final outcome of CSRD negotiations and technical revisions to the broader European Sustainability Reporting Standards. But whatever its final form, the message is clear: the direction of travel for global business is toward more sustainability, not less. And even where regulations become looser, expectations from financiers, customers, and society continue to tighten.
For African SMEs—and the ecosystems that support them—the question is not whether to engage with sustainability reporting, but how to do so in a way that is practical, inclusive, and regionally relevant. The VSME offers one possible path. Whether Africa walks it on its own terms remains to be seen.
