Why Startups Should Embrace ESG Reporting and How VSME Simplifies It

Why Should Startups Take ESG Reporting Seriously?

• Sustainability is Expected: Investors, customers, and partners are increasingly demanding transparency on Environmental, Social, and Governance (ESG) issues. According to a 2023 PwC survey, 79% of investors globally say ESG risks are an important factor in investment decision-making, and 76% would drop a non-compliant company from their portfolio.[Source]
• Financing Opportunities: The market for sustainable financial products grew significantly, and startups with ESG reports have better access to capital. This trend aligns with the growth of the sustainable finance market. For example, the global sustainable debt market reached a record $1.7 trillion in 2023, reflecting investor appetite for transparent ESG practices.[Source]
• Competitive Advantage: Through voluntary ESG reporting, startups can minimize risks, increase operational efficiency, and strengthen their market position. Research from McKinsey shows that companies with high ESG ratings consistently outperform their peers in both stock performance and profitability.[Source]

VSME as a Solution for SMEs:
The voluntary VSME standard offers a simple and cost-effective alternative to the complex CSRD reporting. With just 20 core requirements, it is specifically designed for small businesses to reduce ESG effort by up to 35%.

Benefits at a Glance:

• Access to Financing: Attractive for investors and banks.
• Cost Savings: Optimized resource use through ESG management.
• Flexibility: Modular structure – start with basic data, expand later as needed.
• Risk Protection: Early identification of ESG risks such as climate damage.

Getting Started:

1. Analyze stakeholder needs and select the VSME module.
2. Collect and review ESG data in a structured way.
3. Create and publish the report.
4. Use insights for continuous improvement.

Startups that implement ESG reporting early not only secure competitive advantages but also contribute to a more sustainable economy. As regulatory and market expectations rise, early adopters are better positioned to adapt and thrive.[Source]

Write your first sustainability report!

What is VSME: Making ESG Reporting Easy

The Voluntary Sustainability Reporting Standard for SMEs (VSME) was submitted to the EFRAG and the European Commission on December 17, 2024—developed specifically for small and medium-sized enterprises (SMEs). This standard is part of the SME Relief Package launched by the European Commission in September 2023. Its goal? To provide a simple and practical tool enabling SMEs to meet the growing sustainability data demands of banks, investors, or larger business partners.

VSME was developed after a thorough market analysis: Studies show that 64% of Dutch entrepreneurs consider sustainability indispensable. Additionally, 20% of SME owners report already being affected by customer or financing requests related to the Corporate Sustainability Reporting Directive (CSRD). This mirrors a broader EU trend, where SMEs increasingly face ESG data requests from supply chain partners and financial institutions.[Source]

Compared to the complex CSRD reporting, VSME offers a simplified, voluntary alternative. While the CSRD is mandatory for large, publicly listed companies, VSME targets non-listed companies that want to transparently showcase their sustainability efforts. Below, we take a closer look at VSME’s modular structure.

VSME Structure and Components

The modular structure of VSME allows companies to approach ESG reporting step by step and resource-efficiently. What’s special: companies can start with a basic reporting level and expand it as needed.

The Basic Module covers around 65 key data points from the three ESG areas—environment, social, and governance. For companies with specific requirements, such as those from investors, the Comprehensive Module offers an additional 35 detailed data points.

Another strength of VSME is the so-called "If Applicable" Rule. This allows SMEs to simply omit irrelevant disclosures without needing to justify them. This significantly reduces effort and helps companies focus on the sustainability aspects truly relevant to their business model.

Thanks to its modular structure, VSME remains flexible and scalable. Companies can start with the Basic Module and later move to the Comprehensive Module as their sustainability strategy evolves. This adaptability makes VSME a valuable companion for businesses at various stages of development.

VSME vs. ESRS: Key Differences

A comparison between VSME and the European Sustainability Reporting Standards (ESRS) shows why VSME is especially well-suited to the needs of startups and SMEs. Important to note: VSME is not a stripped-down CSRD standard, but an independent approach developed specifically for SMEs.

A key difference lies in the lower complexity. While the ESRS includes up to 700 indicators, VSME reduces this number to a maximum of 100. This means less administrative burden and more focus on what matters.

VSME also takes into account the limited resources of small businesses. While the ESRS is designed for listed companies with established sustainability departments, VSME offers a solution that fits the capacities of startups without neglecting core sustainability requirements.

Another advantage is selective reporting. Companies can focus on the aspects relevant to their business model. This flexible approach is especially valuable for startups, which often operate with innovative and dynamic business models.

Finally, VSME places great emphasis on practical applicability. The standard aims to make it easier for SMEs to access green financing and strengthen their role in the transition to a more sustainable economy. Thus, VSME goes beyond mere compliance and becomes a strategic tool for business development.

Benefits of Voluntary ESG Reporting for Startups

Voluntary ESG reporting offers startups a range of financial and strategic advantages. Here are the key reasons why this practice pays off.

Business Benefits of ESG Reporting

A clear benefit is improved access to financing and capital. Investors are increasingly focusing on ESG criteria, making companies with strong ESG performance more attractive. Lenders, customers, and employees are also paying closer attention to how companies perform in environmental, social, and governance matters.

Another plus is the strengthening of supply chain partnerships. Large companies are increasingly demanding ESG data from their suppliers to ensure the sustainability of their supply chains. The German Supply Chain Due Diligence Act (LkSG) underscores this trend: violations can result in fines of up to 2% of global annual turnover or up to €8 million.[Source]

Startups also benefit from reputation building and trust. As Felix Jahn from Ralf Bohle GmbH | SCHWALBE explains:

"Transparency builds trust, and only with trust can we shape an environmentally friendly and socially just future together."

The importance of ESG transparency is also evident as DAX40 companies are increasingly establishing ESG committees.

Operational Improvements and Growth Opportunities

ESG management can significantly increase operational efficiency. Structured reporting opens opportunities for innovation, optimized processes, and long-term stability.

Automation and time savings also play a key role. Modern ESG software streamlines compliance, enhances transparency, and helps companies achieve their sustainability goals more efficiently. Reports show that automating ESG processes can save up to 75% of the time required for reporting and compliance.[Source]

One example is Planted, a green tech startup from Cologne. By February 2025, Planted had helped over 350 companies in Germany reduce their emissions by more than 50% using an AI-powered ESG platform. Wilhelm Hammes, CEO and co-founder of Planted, describes the approach as follows:

"We turn the CSRD obligation into an opportunity. Instead of spending months on CO₂ measurement and reporting, we automate these processes. This allows companies to focus their resources on effective measures like decarbonization."

Furthermore, systematic process analysis can both reduce costs and foster innovation. Companies that embrace sustainability strategies and technologies not only improve their environmental footprint but can also participate in local initiatives, such as reforestation of mixed forests.

Benefits vs. Challenges at a Glance

Despite the many benefits, ESG reporting also comes with challenges. The following table shows how the two sides compare:

However, the long-term benefits clearly outweigh the challenges. ESG reporting is becoming a central topic in Germany and is having a lasting impact on business models. Startups that opt for voluntary reporting early on are optimally positioned for future requirements.

Dr. Ansgar Schleicher, Managing Partner at TechVision Fonds, puts it succinctly:

"Through intelligent automation, Planted combines ecological responsibility with business success—and makes sustainability measurably profitable."

This combination of economic benefit and ecological responsibility makes ESG reporting a valuable tool for startups focused on sustainable growth.

How to Implement VSME ESG Reporting: 4-Step Process

Introducing VSME ESG reporting may seem daunting at first, but with a clear plan, the standard can be implemented efficiently. Below is a four-step process to help startups and SMEs successfully launch VSME ESG reporting.

Step 1: Identify Stakeholder Needs and Choose the Right Module

The first step is to understand your stakeholders’ expectations and select the appropriate module. There are two options: Basic (11 requirements) for companies just starting with ESG topics, and Comprehensive (an additional 9 requirements) for more detailed reporting.

Begin by assessing how well your company is positioned regarding CSR (Corporate Social Responsibility). The Basic Module is ideal for smaller companies wanting to meet ESG requirements without falling under the CSRD obligation. The Comprehensive Module is aimed at companies with higher stakeholder demands.

Conduct a qualitative materiality analysis focusing on your company’s impact on the environment and society. Consider not only direct impacts but also risks and opportunities. Thanks to the "if applicable" principle, irrelevant disclosures can be skipped.

Step 2: Collect and Review ESG Data

The next step is to gather the required ESG data and assess its quality. The Basic Module covers several topic areas, each with specific data points:

Use existing standards such as EMAS or ISO 14001 to facilitate the data collection process. It’s advisable to coordinate early with business partners and financial institutions to ensure all relevant metrics are captured.

Conduct an inventory to determine which data is already available and how well it meets VSME requirements.

Step 3: Create and Publish the ESG Report

Based on the collected data, create an ESG report that is clear, transparent, and comparable. Use standards such as GRI, SDGs, CSRD, and the EU Taxonomy as guidance.

A well-crafted report helps clarify the impact of your business activities on the environment and society. It also enables stakeholders to better assess risks and opportunities. The report serves not only as an information source but also as a communication tool to underscore the seriousness of your sustainability efforts.

Additionally, an ESG report can strengthen your external image: it provides valuable content for PR and answers many stakeholder questions in a single document.

Step 4: Use Report Findings for Improvements

The final step is to strategically use the insights from the report. This not only helps improve ESG performance but also better aligns with stakeholder expectations.

The VSME standard simplifies reporting by standardizing ESG data requests and reducing uncoordinated demands. This improves access to lenders, investors, and customers.

Use the results to further develop sustainable strategies and identify potential competitive advantages. VSME complements existing reports on quality, health, safety, and environment (QHSE) and provides a more comprehensive view of your sustainability performance.

Regular feedback from stakeholders can help you continuously optimize your ESG strategy and open up new avenues for business development.

Fiegenbaum Solutions: Expert Consulting for ESG in Startups

Implementing VSME ESG reporting requires not only technical know-how but also a deep understanding of the challenges German startups face. That’s where Fiegenbaum Solutions comes in. The company offers tailored consulting services to help startups professionally develop and implement their ESG strategy. Here’s an overview of the specific services Fiegenbaum Solutions provides.

ESG Services from Fiegenbaum Solutions

Fiegenbaum Solutions guides startups through the entire ESG reporting process. Core services include developing ESG strategies, lifecycle assessments (LCA), compliance and reporting services, and impact modeling specifically for startups.

A key component is analyzing the corporate carbon footprint to systematically record greenhouse gas emissions. The consultancy also offers climate risk assessments and the development of net-zero strategies that define long-term sustainability goals.

Additionally, Fiegenbaum Solutions combines ESG expertise with digital marketing to make sustainable growth measurable and transparent [36, 37].

Why Fiegenbaum Solutions?

Johannes Fiegenbaum, the founder and solo consultant, brings a unique combination of deep sustainability expertise and startup experience. This mix allows him to offer consulting services that not only develop ESG strategies and scalable business models but also support startups in achieving product-market fit.

Fiegenbaum Solutions’ competence is underscored by concrete success stories. For example, OBI Selbstbaumöbel implemented a personalized Facebook Pixel concept through the collaboration, resulting in the highest lead numbers and conversion rates for a new product line. Another example is Konfidens, a mental health solutions provider, which was able to reduce its ecological footprint and successfully implement ESG measures with Fiegenbaum Solutions’ help.

The approach of Fiegenbaum Solutions is based on the idea that sustainable transformation is only possible through data-driven decisions and the use of modern technologies. The focus is equally on efficiency gains, cost reductions, and regulatory compliance.

Support for VSME Reporting

Fiegenbaum Solutions offers comprehensive support for startups at every step of the VSME reporting process. The process begins with a detailed analysis of existing sustainability practices and data systems.

Particularly valuable is the expertise in selecting the right ESG metrics in line with the VSME framework. The consultancy takes into account both regulatory requirements and business objectives to ensure that the chosen metrics are practical and legally compliant.

The offering also includes training and workshops that empower internal teams to further develop ESG processes independently. This approach goes beyond pure consulting and actively supports startups in strategically integrating ESG data into their business models.

A key advantage lies in linking ESG topics with modern growth strategies. Fiegenbaum Solutions demonstrates how ESG reporting can be more than a box-ticking exercise—it can be a powerful growth driver.

Conclusion: ESG Reporting as a Growth Tool

Voluntary ESG reporting according to the VSME standard offers German startups a real opportunity to stand out from the competition. By systematically addressing sustainability topics, they not only create transparency for investors and business partners but also uncover operational improvements that can directly boost profitability. These advantages make getting started with ESG reporting easier and more rewarding.

Thanks to VSME’s modular structure, companies with limited resources can start step by step—whether with the basic version or a more comprehensive solution. This transparency is becoming increasingly important for access to financing, funding programs, and partnerships with larger companies. Even if the requirements seem complex, support is available: Professional ESG consultants bring the necessary know-how and accelerate the process. The ESG consulting market is expected to reach a volume of $13.82 billion by 2031.[Source] A prime example is Fiegenbaum Solutions, which achieves measurable success by combining ESG expertise and startup experience. With data-driven approaches and modern technology, ESG reporting becomes a practical growth tool rather than a bureaucratic hurdle.

Startups that choose voluntary ESG reporting today send a strong signal: they position themselves as pioneers, gain trust, and unlock new business opportunities. This lays the foundation for long-term success in a constantly evolving market.

FAQs

How Can Startups Get Started with Voluntary ESG Reporting According to the VSME Standard?

Getting Started with ESG Reporting Using VSME

The first step toward ESG reporting with VSME is a needs analysis: Which stakeholders are interested in your ESG data? And which module—Basic or Comprehensive—best fits your company? Once this is clarified, you can start collecting relevant metrics such as energy consumption, CO₂ footprint, or diversity data.

Next, create a report following the VSME structure, highlighting the topics most important to your business model. This report should be published on your website and actively shared with investors, customers, and partners. It also serves as a foundation for targeted improvement and further development of your sustainability strategy.

With this step-by-step approach, you not only create transparency and build trust but also prepare early for possible future regulatory requirements.

What Sets the VSME Standard Apart from the European Sustainability Reporting Standards (ESRS), and Why Is It Ideal for SMEs?

The VSME Standard: A Solution for SMEs

The VSME standard was developed specifically for small and medium-sized enterprises (SMEs) that are not publicly listed. It offers a voluntary alternative to the extensive and mandatory requirements of the ESRS. While the ESRS contains comprehensive and complex requirements for large companies, VSME stands out for its modular structure. It is easy to apply and takes into account the limited resources available to many SMEs.

Why Is VSME Such a Good Fit for SMEs?

The VSME standard offers a pragmatic and resource-efficient way to implement ESG reporting. Without the extensive requirements of the ESRS, startups and SMEs can create transparency, build stakeholder trust, and prepare early for potential regulatory requirements. The effort remains manageable, so companies are not overwhelmed.

What Long-Term Benefits Can Startups Achieve Through Voluntary ESG Reporting?

Voluntary ESG reporting can be a real game-changer for startups. It increases attractiveness to investors, makes it easier to access financing sources, and strengthens stakeholder trust. It also helps young companies position themselves better in the market and boost their competitiveness.

Another benefit: ESG reporting drives innovation and growth. Systematic analysis of sustainability aspects reveals optimization opportunities that bring long-term benefits. At the same time, startups can respond early to future regulatory requirements and improve their adaptability to market changes. As transparency on ESG issues becomes the norm, this is a chance to present yourself as a responsible and forward-thinking company.