Value Chain Cap: New limits for sustainability data requirements in the supply chain

The EU wants to protect small and medium-sized enterprises (SMEs) from excessive sustainability data requests from large business partners. As part of the 2025 Corporate Sustainability Reporting Directive (CSRD) reform, the “value chain cap” was introduced. This concept limits the information that large reporting companies can request from non-reporting partners in their value chain. The aim is to slow down the trickle-down effect – in other words, to prevent small suppliers and customers from being indirectly burdened by the extensive sustainability requirements of large companies. In short, a corporation should not be allowed to demand more sustainability data from a medium-sized supplier than the latter would have to provide if it were itself subject to reporting requirements.

Who is considered a “protected” company in the value chain?

Under the new EU law, protected undertakings are defined as all companies in the supply chain that have fewer than 1,000 employees and are therefore not subject to CSRD reporting requirements themselves. This threshold (1,000 employees) was deliberately chosen to exempt SMEs and smaller subsidiaries from reporting requirements and reduce their administrative burden. For such companies, the value chain cap acts as a protective mechanism.

Example: A family business with 250 employees that supplies parts to a large automotive group counts as a protected undertaking. Thanks to the value chain cap, the automotive group must now consider what sustainability data it requests from this supplier.

What can large companies still request – and what not?

Permissible scope: From now on, large companies’ sustainability data requests to protected undertakings should be limited to what is provided for in the voluntary standard (VSME). In other words, the EU Commission is finalising the voluntary sustainability reporting standard for SMEs, and only the information from this standard may be requested from small partners on a mandatory basis. If a large company requests information beyond this, the law expressly grants small partners a legal right to refuse to provide this information. The reporting company must also clearly indicate when it requests information – directly or indirectly – that goes beyond the voluntary SME standard. In such a case, it must specify which specific additional data is required and clearly point out the legal right to refuse.

In practical terms, this means that if an SME receives a comprehensive sustainability questionnaire from a major customer, this questionnaire should in future cover no more than the points from the new SME standard (see VSME standard below). The SME is not required to answer any questions that go beyond this – e.g. very detailed ESG data or key figures that are not part of the standard – if it does not wish to do so. And the major customer must expressly announce the right not to answer if it nevertheless requests additional information.

What rights and obligations do SMEs have in the supply chain?

For SMEs, the Value Chain Cap primarily results in new protective rights:

• Self-disclosure instead of obligation to provide evidence: A large company may rely on the supplier’s own statements to determine its status. The SME can therefore informally confirm that it employs fewer than 1,000 people and is not subject to reporting requirements. As a rule, the large customer does not have to verify this self-disclosure. Only if the obvious circumstances suggest that the information could be false, it may not simply accept it. (Example: A supplier claims to have <1000 employees, although it is common knowledge that it is significantly larger.)
• Right to refuse to provide information: As mentioned above, SMEs may refuse to provide requested data that goes beyond the voluntary standard – and they are backed by the law in doing so. This right serves as a defence against excessive questionnaires. Important: SMEs may, of course, continue to voluntarily provide any information they wish. The Value Chain Cap does not prohibit the voluntary disclosure of sustainability information. For example, industry-specific key figures that suppliers and customers typically exchange can still be communicated freely.
• Large companies’ duty to provide information: Large companies subject to reporting requirements must be transparent towards SMEs. If they do request additional sustainability data, they must make it clear in advance which questions go beyond the standard and that the SME has a legal right to refuse to provide the information.

What does the value chain cap limit – and what does it not?

The value chain cap focuses exclusively on data requests for sustainability reporting in accordance with the CSRD (or the EU Accounting Directive). Other areas remain unaffected:

• No restrictions on voluntary cooperation: As mentioned above, companies in the supply chain can continue to share more information voluntarily if they wish to do so. The Value Chain Cap does not impose any prohibitions here, but only sets an upper limit for mandatory requests.
• No impact on due diligence obligations: Legal due diligence obligations (e.g. from the upcoming EU Supply Chain Directive, CSDDD) or risk-related information requests remain unaffected. In other words, if a large company needs information from its suppliers for risk management purposes or due to human rights and environmental due diligence obligations, the value chain cap does not apply as a barrier. It only applies to requests made solely for the sustainability report.
• No new disclosure requirements for SMEs: Very important for SMEs: the new rules do not establish any obligation for companies in the value chain to provide sustainability data at all. Neither implicitly nor explicitly does the EU force suppliers to provide their customers with sustainability metrics. The voluntary standard is – as the name suggests – voluntary. So if an SME has not collected relevant data to date, it does not suddenly have to do so. However, experience shows that large companies expect at least basic information in order to avoid gaps in their own reporting. It is therefore in the interest of many SMEs to be able to provide at least basic information.
• Those subject to reporting requirements remain subject to reporting requirements: large companies that fall under the CSRD must continue to report on their entire value chain. However, the value chain cap ensures that they can only include data from the voluntary SME standard in their reports. If they do not receive further information from their protected partners, their reporting obligation is still considered to have been fulfilled. In other words, a large company will not be penalised if a small supplier does not provide certain data (beyond the standard) – it is sufficient for the large company to report within the framework of the standard. Although this rule has been formulated in a somewhat misleading way, it is intended to clarify that no corporation is required to request all possible standard data in order to report in compliance with the rules. The principle of voluntary participation for SMEs remains in place.

The VS Standard: the basis of the Value Chain Cap

At the heart of the Value Chain Cap is a new voluntary reporting standard for SMEs, often referred to as the VS standard (Voluntary Sustainability Reporting Standard). In July 2025, the EU Commission published a corresponding recommendation (EU) 2025/1710 introducing this standard. The VSME standard provides a simplified framework that enables small businesses to collect and share sustainability information without excessive effort. It consists of a basic module (a minimum set of information that every SME can report) and optional extension modules for companies that want to go into more detail.

Why is VS important? The VS standard is likely to become a practical lifeline for SMEs. Large customers and banks are encouraged to limit their questionnaires to SMEs to the points covered by this standard. It is highly likely that many of the ESG questionnaires currently in circulation will be significantly streamlined in future and based on the VSME. It is therefore worthwhile for SMEs to familiarise themselves with the standard. Although the use of VSME is voluntary, it is strongly recommended in order to meet the growing demand for comparable sustainability data. An SME that proactively reports according to VSME signals to its business partners that it is professional and serious about sustainability.

Implementation of the Value Chain Cap and outlook

The EU Commission has been authorised to make the VSME standard “legally binding” (though voluntary). A delegated act is planned, which is to be adopted approximately four months after the legislative amendments come into force. This would formally bring the voluntary standard into force and form the reference framework for permissible supply chain enquiries. The content is based on the existing VSME draft from EFRAG (European Financial Reporting Advisory Group), which was finalised in December 2024 and submitted to the Commission. The standard is to be largely based on the proven EMAS Environmental Management Regulation in order to exploit synergies with existing environmental reporting systems. It is also planned to review the SME standard every four years and to amend it only if necessary – and with the technical recommendation of EFRAG.

At the same time, it has been decided at EU level to adapt the mandatory ESRS reporting standards for large companies: in future, these will only contain requirements that are compatible with the value chain cap. This means that no information will be required that is not requested from SMEs in the supply chain. Auditors must also take the value chain cap into account – in their audit opinions, they should therefore assess any gaps in supplier-related data in light of this new limitation.

Conclusion: What does this mean for SMEs?

The value chain cap is good news for medium-sized companies and their sustainability officers. It reduces the pressure of being confronted with excessive data requirements in the wake of the CSRD expansion (see our guide about CSRD und ESRS). Specifically, SMEs should now:

• Communicate their status: If necessary, signal to their major customers that they have fewer than 1,000 employees and are therefore considered a protected undertaking. In many cases, the customer will ask about this anyway – here, you can be proactive and transparent.
• Use the VSME standard: Familiarise yourself with the voluntary standard and, if possible, have the key figures required in the basic module available. This basic data (e.g. employee numbers, environmental indicators, basic policies) is likely to represent the maximum scope of supplier questionnaires in future. Those who have this information ready will largely fulfil the expected disclosure requirements. The VSME offers pragmatic guidelines for organising data collection efficiently.
• Know your rights: Be aware that you can refuse further requests (beyond the standard) – and that your business partner should be aware of this. However, this right should be exercised with caution. In many cases, open communication makes more sense than a blanket refusal. If a request is received that goes beyond what is required, you can politely refer to the value chain cap. Often, this signal is enough for the partner to understand that this is the end of the line – without straining the business relationship.
• Doing more voluntarily (if beneficial): If an SME has advanced sustainability measures in place or operates in an industry where more detailed ESG data is common, it can voluntarily decide to report beyond the standard. The value chain cap does not prevent this. On the contrary, voluntary transparency can be a competitive advantage. Companies should weigh up individually what additional information they can provide without incurring significant additional costs, for example to build closer partnerships with important customers.

In summary, the value chain cap significantly reduces the burden on smaller companies without excluding them from sustainability issues. Large companies are encouraged to request information with a sense of proportion. SMEs gain some breathing space – and a clearly defined framework within which they can provide information. This framework – embodied by the VSME standard – creates transparency and predictability for both sides of the supply chain. For SMEs, the message now is: seize the opportunity to position yourselves within this framework instead of being overwhelmed by uncoordinated requests. This makes sustainability reporting feasible and practical even for smaller companies – exactly what the Value Chain Cap is intended to achieve.

Related Links:

• The Supply Chain Act in Germany
• Governance, Compliance & EU Regulation
• Why VSME Can Mean More Data Than ESRS—for SMEs and Their Banks
• Finance Department Organization in SME’s
• Responsibility for the Value Chain