CSRD, ESRS, VSME, LSME — The Complete Guide
If you work in sustainability, finance, or compliance in Europe, you have almost certainly encountered a growing alphabet soup of acronyms: CSRD, ESRS, VSME, LSME. Each one plays a distinct role in the European Union's push for transparent sustainability reporting, yet they are constantly confused with each other. This guide untangles them once and for all.
CSRD — The Law
The Corporate Sustainability Reporting Directive (CSRD) is the EU legislation that requires companies to publish standardised sustainability reports. It replaced the older NFRD (Non-Financial Reporting Directive) and dramatically expanded the number of companies in scope — from roughly 11,700 under NFRD to approximately 50,000 under CSRD (before the Omnibus simplification).
Key point
CSRD is a legal requirement, not a reporting standard. It tells you that you must report. The standards below tell you what and how to report.
CSRD applies in phases: large public-interest entities from FY2024, other large companies from FY2025, and listed SMEs from FY2026 (with a possible opt-out until FY2028).
ESRS — The Full Standards
The European Sustainability Reporting Standards (ESRS) are developed by EFRAG (European Financial Reporting Advisory Group) and tell CSRD-obligated companies exactly what to disclose. There are 12 standards in total: 2 cross-cutting standards (ESRS 1 and ESRS 2) plus 10 topical standards covering Environmental (E1–E5), Social (S1–S4), and Governance (G1) themes.
- ESRS 1: General requirements — defines concepts like double materiality
- ESRS 2: General disclosures — governance, strategy, IRO management, and metrics every company must report
- E1–E5: Climate change, pollution, water, biodiversity, circular economy
- S1–S4: Own workforce, workers in the value chain, affected communities, consumers/end-users
- G1: Business conduct
Companies only report on the topical standards (E1–G1) that are material to them, determined through a Double Materiality Assessment (DMA). ESRS 2 is always mandatory.
VSME — The Voluntary SME Standard
The Voluntary Sustainability Reporting Standard for non-listed SMEs (VSME) was published by EFRAG in late 2024. It is a simplified, modular standard designed specifically for small and medium enterprises that are not legally required to report under CSRD but face growing data requests from their supply chain partners, banks, and investors.
| Module | What it covers | Effort level |
|---|---|---|
| Basic Module | Core metrics: energy, GHG emissions, workforce, governance | Low — a few KPIs |
| Narrative–PAT Module | Policies, actions planned or taken, targets set | Medium — qualitative disclosures |
| Business Partners Module | Extended data requested by value chain partners | Higher — detailed breakdowns |
Why "voluntary" is misleading
While not legally required, VSME is increasingly the format expected by CSRD-reporting customers, SFDR-regulated banks, and large procurement departments. Refusing to provide VSME-format data may mean losing contracts or financing.
LSME — The Listed SME Standard
LSME stands for Listed SME (Exposure Draft). It is a proportionate reporting standard for SMEs whose shares are traded on EU-regulated markets. Unlike VSME, which is voluntary, LSME will be mandatory for listed SMEs under CSRD (from FY2026, with an opt-out possible until FY2028).
LSME sits between VSME and full ESRS in terms of complexity — more detailed than VSME but significantly simpler than the full 12 ESRS standards. It is designed so that investors get decision-useful information without overburdening smaller public companies.
How They All Relate
Think of the relationship as three concentric layers:
- CSRD is the law — it mandates reporting
- EFRAG is the standard-setter — it writes the standards
- ESRS, LSME, and VSME are three parallel reporting standards developed by EFRAG, each for a different company size/type
| Standard | Who | Mandatory? | Complexity |
|---|---|---|---|
| ESRS (full) | Large companies | Yes (CSRD) | High — 12 standards |
| LSME | Listed SMEs | Yes (CSRD, from FY2026) | Medium — proportionate |
| VSME | Non-listed SMEs | No — voluntary | Low — modular |
Bottom line
CSRD is the reason you report. EFRAG writes the rules. ESRS, LSME, and VSME are the three rulebooks — pick the one that matches your company profile.