Navigating regulatory uncertainties of the EU Omnibus Proposal – is VSME as the way forward?

This proposal could tempt companies to stop the introduction of sustainability reporting processes. However, the softer factors that call for accounting and reporting of sustainability data remain, regardless of the regulatory changes. For 2025, the European Supervisory Authorities announced they will increasingly analyse the climate risks of financial actors. This will mandate banks, insurers, and institutional investors to analyse their portfolios for physical and transitory risks associated particularly with climate change and biodiversity. Large clients, which remain subject to transparency regulations, will also require increasingly accurate environmental, social, and governance (ESG) data from their suppliers.

This raises the question how companies that fall outside the scope of the amended CSRD should approach sustainability reporting. For these companies, the European Commission has suggested the Voluntary Sustainability Reporting Standards for Small and Medium Enterprises (VSME) developed by the European Financial Reporting Advisory Group (EFRAG). This standard addresses most topics of the ESRS (e.g. carbon footprint or workforce composition), albeit in much less detail. It features 20 disclosures in two modules (basic and comprehensive). Compared to the full ESRS, the VSME is significantly easier to implement, particularly for medium-sized and larger companies. At the same time, the Omnibus Proposal suggests the VSME as the standard for participants in value chains of companies subject to the CSRD. 

Many companies in business with large clients are already involved in some form of sustainability reporting via supplier sustainability ratings (e.g. EcoVadis) or queries from their banks. These companies should thus weigh the datapoints in those queries against the datapoints of the VSME to identify potential for streamlining. Independent of external requirements, companies should realise that understanding sustainability performance is one further step toward managing physical and transitory sustainability risks and opportunities. Climate change will increasingly cause damage to physical assets and supply chains, while political measures increase the costs of emitting greenhouse gases. The corresponding transparency regulations are intended to increase understanding and accountability for those risks, and companies should heed this goal regardless of their exposure to the CSRD.

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Dr Simon Norris advises large clients of nbs partners on the implementation of ESRS reporting and sustainability management approaches. He gained his expertise through his doctoral research at the Centre for Sustainability Management of the Leuphana University Lüneburg.