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The Omnibus proposal has thrown ESG reporting into a state of uncertainty. While large companies (+1000 employees) remain in scope of the Corporate Sustainability Reporting Directive (CSRD), the reporting timelines and exact ESRS (European Sustainability Reporting Standards) content remain unclear.
And for smaller EU companies suddenly out of scope, the question looms large: Should we stop reporting, or take proactive steps with a voluntary framework like the VSME?
The reality is, most businesses, regardless of their legal obligations, will still face ESG information demands from banks, investors, customers, and regulators. That’s why aligning with the VSME standard developed by EFRAG is a no-regret move, especially while the rest of the market stalls in confusion.
This blog dives into:
In the immediate aftermath of the Omnibus announcement, we spoke to more than 50 mid-sized companies that are no longer in the mandatory CSRD scope. These included a diverse mix of sectors, maturity levels, and ESG reporting experience. What we found is that companies are falling into four distinct response types, each reflecting different levels of ESG readiness and strategic foresight.
These companies are continuing their double materiality assessment (DMA) and aligning with the broader ESRS framework voluntarily, even without a legal mandate. They see ESG as a long-term value driver and a key part of corporate governance. Although many won’t undergo a formal audit due to resource constraints, they recognize that building internal ESG data capabilities now will give them an advantage, not just for compliance, but for stakeholder relationships and future-proofing their operations.
This group takes a balanced approach. They value the strategic insights that come from a materiality assessment but choose to report using the VSME standard. This lets them provide ESG information that is both relevant and digestible for banks, investors, and clients, without the reporting overhead that comes with full ESRS compliance. Many pragmatists also cherry-pick ESRS topics that are most material to their sector, blending voluntary VSME reporting with selected ESRS-aligned disclosures.
These companies are driven primarily by external pressure, especially from banks or clients in the supply chain. Rather than investing in a full strategy, they adopt the VSME reporting framework to meet immediate stakeholder demands. The goal is simple: respond to ESG data requests in a consistent format, reduce the burden of sustainability questionnaires, and avoid reputational or financial risk.
A small portion of companies have taken no action, choosing to wait for clearer regulatory guidance. While understandable, this approach carries significant risk. As we’ll explore below, banks, customers, and investors are moving ahead with VSME-aligned data expectations, making inaction a short-lived option. Sooner or later, every company will need to respond.
The VSME standard, created by EFRAG, offers small and medium-sized enterprises a structured, voluntary ESG reporting framework that aligns with CSRD logic but at a lower burden. It defines up to 100 ESG data points, grouped under two modules: the Basic module and the Comprehensive module. What’s unique about VSME reporting is that it sets the ceiling, the maximum data that can be requested from SMEs by stakeholders. This provides much-needed clarity in a landscape where companies are often overwhelmed by inconsistent data requests.
For ESG managers, the value of VSME is clear. With expectations growing across the board, from banks performing ESG risk assessments to customers needing supplier data for their own CSRD reports, companies are under pressure to deliver structured, transparent ESG information. VSME reporting standardizes and streamlines this process, helping businesses respond to ESG requests once, and do it right.
What’s more, the market is beginning to converge around the VSME CSRD approach. In early 2025, Febelfin and Isabel Group launched a common digital platform that banks will use to collect ESG data from SME clients. This platform will be aligned with the EFRAG VSME standard, creating an ecosystem where SMEs and banks speak the same reporting language. The reason is simple: banks are now subject to Capital Requirements Regulation (CRR III) and Capital Requirements Directive (CRD VI), which require them to assess ESG risk in their loan books starting in 2026. And the only way they can do that is by collecting consistent ESG data from clients.
If your company wants to access financing, reduce interest rates, or participate in public and private tenders, providing a VSME report will increasingly become the baseline requirement. In that sense, preparing your VSME report isn’t just a compliance task, it’s a competitive advantage.
The VSME tool is designed to be flexible. It meets companies where they are today, whether they’re new to ESG reporting or already managing sustainability KPIs. Depending on your size and ESG maturity, you can choose one of three VSME reporting paths:
The Basic module covers essential ESG metrics like energy usage, waste management, and employee policies. It’s designed for companies with limited resources and experience in ESG. This is the best option for first-time reporters who want to meet the baseline requirements of stakeholders, especially banks and customers, without overextending their capacity.
This path is ideal for businesses with a growing need to report to financial institutions, investors, or large corporate clients. It includes additional data points such as carbon footprint, climate risks, and social governance. It allows companies to demonstrate leadership on ESG issues, improve risk transparency, and position themselves for green funding and procurement opportunities.
For businesses that want to stay ahead of regulation and build trust with partners, this option combines all VSME modules with customized disclosures requested by customers or sector bodies. It’s the choice for ESG trailblazers who see reporting as a business enabler, not just a compliance requirement. Many Wave 2 CSRD reporters in this category are already using this approach to stay ready for future ESRS adoption.
It’s important to recognize that while VSME reporting is a smart and strategic starting point, it’s not the entire journey. Your annual ESG report, whether aligned to VSME or ESRS, is just the output. The real work lies in understanding, prioritizing, and taking meaningful sustainability action behind the scenes.
Use your impacts, risks, and opportunities (IROs), to assess what matters most to your business and to your stakeholders. What ESG topics are banks concerned with in your sector? What do your customers value in the supply chain? Where are your biggest sustainability gaps? Measuring your current ESG baseline is the first step to building a reporting strategy that makes sense.
Once you know where you stand, you can define ESG goals and focus efforts where they’ll matter most. Whether it’s energy efficiency, DEI policies, or sustainable procurement, VSME reporting only works when it reflects real action. Your annual reporting obligations, and your credibility with stakeholders, depend on consistent progress.
Sustainability is a journey, not a checkbox. Your VSME or ESRS report is not just for regulators, it’s a tool for communicating your strategy to investors, customers, employees, and partners. Done right, it can strengthen your brand, improve access to capital, and help attract the next generation of talent who want to work for companies making a difference.
VSME reporting doesn’t have to be a burden. With Karomia’s AI-powered platform, you can turn scattered files, invoices, and policies into a clear, structured report, without getting lost in the regulation. Our step-by-step process helps you start with what you already have, prefill disclosures using your business data, and collaborate seamlessly with your team or consultant. In just a few guided steps, you can generate a shareable, stakeholder-ready VSME report or even publish an ESG dashboard that tells your sustainability story.
Let’s make reporting the easy part! Book a call today.
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