The regulatory landscape for sustainability reporting is being upended, particularly for small and medium-sized businesses (SMEs). The recent Omnibus proposal, which aims to adjust the scope of the Corporate Sustainability Reporting Directive (CSRD), presents a pivotal moment to reassess their sustainability disclosure strategies.
While most SMEs may now find themselves outside the mandatory reporting perimeter of the CSRD, they won’t be able to ignore sustainability reporting altogether. Requests from large companies and other stakeholders will continue to drive the need for accurate ESG data. This context underscores the relevance of the Voluntary (VSME) standard, a framework developed by the European Financial Reporting Advisory Group (EFRAG), designed to facilitate proportionate and strategic sustainability reporting.
Where is the Omnibus Heading?
On 26 February 2025, the European Commission proposed a set of sweeping changes to EU rules on sustainability reporting and due diligence. These proposals form an “Omnibus Simplification Package,” keeping sight of the EU’s new strategic priority to boost the bloc’s economic competitiveness. They are, however, only drafts at this stage and will need to be agreed and adopted by the European Parliament and Council as co-legislators, and subsequently transposed into EU member states’ national laws.
Four Key Takeaways for CSRD Reporting:
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Who needs to report under the CSRD may change: As per the Commission’s proposal, mandatory sustainability reporting would apply to companies with 1,000+ employees and either a €50 million turnover or €25 million in assets.
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CSRD reporting deadlines are likely to be delayed: Once the “stop-the-clock” proposal is agreed upon, companies scheduled to report in 2026 may get a two-year delay, meaning their first reports could be due in 2028.
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ESRS might be simplified: EFRAG, initially tasked with developing the European Sustainability Reporting Standards underpinning the CSRD, was requested to provide technical advice to modify them by focusing on reducing mandatory data points.
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VSME could become the go-to standard: The voluntary reporting framework for SMEs is en route to becoming the standard approach for micro, small and medium enterprises outside the proposed CSRD scope.
Understanding VSME: A Framework for Strategic Adaptation
The Commission estimates that the omnibus proposal will reduce the number of companies in the CSRD scope by 80%. Those exempt from mandatory reporting (companies with up to 1,000 employees) may choose to report voluntarily based on simplified VSME standards.
The VSME is structured to provide SMEs with a practical and scalable approach to sustainability reporting. It recognizes smaller enterprises' unique operational and resource constraints, offering a streamlined pathway to demonstrate commitment to ESG factors. Based on market acceptance, the VSME is expected to standardize the current multiple data requests from business counterparties.
Unlike the comprehensive and often resource-intensive requirements of the CSRD, the VSME standard focuses on core ESG indicators that are directly material to SMEs’ operations and their stakeholders. Businesses decide which disclosures are relevant to their operations, based on the “if applicable” principle, and a modular approach gives SMEs the ability to shape their reporting depending on their needs or capabilities.
Like the ESRS, the VSME is divided into environmental, social and governance categories, and consists of two modules:
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Base module: Mandatory for all VSME reporters. It includes simplified 11 ESG disclosures, a prerequisite for the comprehensive module.
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Comprehensive module: For SMEs requiring more detailed reporting for investors, banks and clients. This additional module adds nine disclosures, including scope 3 GHG emissions and climate risks.
This modular concept allows SMEs to strategically integrate sustainability reporting into their existing operational frameworks. Rather than imposing immediate and stringent requirements, the VSME encourages a flexible adoption process, enabling businesses to build capacity and develop robust reporting mechanisms over time.
VSME: A Standard or a Requirement?
The omnibus proposals come at a time when thousands of companies have already heavily invested in their ESG disclosure efforts. With mandatory requirements loosening and being put off in time, those companies now face a choice: stay the course, transition to the VSME, or scale back reporting altogether.
The market signals are clear: beyond mere compliance, structured sustainability reporting offers significant strategic advantages. In today’s market, stakeholders, including customers, investors, and business partners, increasingly prioritize organizations that demonstrate a commitment to sustainability. By embracing the CSRD standards en route to becoming more accessible, or VSME as a right-sized alternative, SMEs can differentiate themselves in a competitive marketplace and remain aligned with evolving expectations of business partners.
EcoVadis empowers companies to effectively demonstrate their sustainability performance and navigate the complexities of sustainability reporting with confidence and clarity. Want to know more? Find a time with our team.
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