The Omnibus Proposal has introduced significant uncertainty into CSRD reporting, leaving out-of-scope companies under the proposed reform questioning their next steps.

Specifically, ESG managers are now wondering whether to:

• Continue reporting under the European Sustainability Reporting Standards (ESRS) framework;
• Stop reporting altogether; or
• Report under a different framework.

Under this latter option, there are two main alternative frameworks to consider. The Omnibus Proposal suggests the Voluntary Standards for Non-Listed SMEs (VSME). For an overview of these standards, check this article.

However, for businesses that have already started their ESG reporting journey, this recommendation may not be ideal. Many experts argue that the ESRS for Listed SMEs (LSME) are a better alternative.

Therefore, here is a breakdown of the key differences between the VSME and LSME standards:

Double Materiality Assessment (DMA)

A DMA assesses the negative impacts of a business on the environment and society (impact materiality), as well as any negative financial impacts caused by sustainability issues (financial materiality).

• LSME requires a DMA. Companies report only on the sustainability impacts that are material to their business. The DMA provides valuable insights into ESG risks and opportunities, enabling a strategic approach to sustainability that can attract investors and customers.
• VSME eliminates the DMA. As a result, the selection of datapoints can be less precise and inefficient.

Although VSME includes a climate risk assessment in its comprehensive module, it lacks the depth and purposefulness of a full DMA. This makes it better suited for small or micro companies with simpler business structures. Attempting to select material datapoints without a structured approach can undermine the purpose of reporting. Experience shows that loosely prepared DMAs, based solely on sector-wide assumptions or broad methodologies often complicate gap analysis and hinder the identification of optimal actions.

That said, conducting a DMA can be costly, making it challenging for less resourceful companies. For businesses simply looking to explore sustainability reporting, the basic VSME standards provide a practical entry point.

Volume of Disclosures

Balancing comprehensive ESG reporting with administrative efficiency is a major concern.

• LSME streamlines disclosures, reducing the volume of required data while maintaining a focus on key areas that drive both business value and sustainability improvements. It also keeps the burden significantly lower than full ESRS compliance.
• VSME limits disclosures to just 20 aspects. This framework is designed primarily for companies that report indirectly through business partners or investor requirements, making it an efficient way to gather data for those purposes. However, it is less well-rounded than LSME for addressing sustainability issues within a business.

When compared with the ESRS, the LSME still constitute an immense reduction in the amount of data points.

Value Chain Reporting

Value chain transparency is critical for assessing sustainability risks and opportunities beyond direct operations.

• LSME includes a simplified version of value chain reporting, making compliance manageable while still identifying key sustainability risks and opportunities.
• VSME significantly reduces value chain reporting, making it harder for companies to analyse the broader impact of their activities and optimise their ESG strategy.

Scope 3 GHG emissions and a description of policies, practices, and targets related to value chain issues are included in the comprehensive module of the VSME. However, small companies often omit Scope 3 reporting due to the burden of assessing value chain partners. While this maybe justified in some cases, companies that have the capacity to conduct these assessments should do so, as many sustainability impacts and risks arise through business relationships rather than internal operations.

Focus on Policies, Actions, Metrics & Targets (PAMT)

Effective ESG reporting should be structured around driving real improvements and accountability.

• LSME follows the PAMT structure, ensuring companies report on policies, actions, measurable metrics, and clear targets, which are key elements for ESG value creation.
• VSME requires reporting on practices, policies, and future initiatives related to major sustainability topics, including:
   
  • Climate change
  • Pollution
  • Water and marine resources
  • Biodiversity and ecosystems
  • Circular economy
  • Workers own and value chain
  • Affected communities
  • Consumers and end-users
  • Business conduct

These topics are broad, and while the framework provides some guidance, it leaves room for interpretation and flexible reporting. LSME offers a more structured and holistic approach.

Conclusion

For companies that have already conducted or completed their DMA, switching to VSME would mean losing valuable insights and facing potential sunk costs. Instead, continuing with LSME ensures that sustainability reporting remains strategic, decision-useful, and aligned with broader business objectives.

VSME, while simpler, may not be adequate for mid-sized companies aiming to integrate sustainability into their business models effectively. It appears to be more suited to companies fulfilling external stakeholder requests rather than those using ESG data for internal value creation.

It is surprising that the Commission has not addressed the LSME framework at any point in its Omnibus discussions. In any case, given the voluntary nature of both frameworks, companies should choose the one that best aligns with their size, resources, and sustainability ambitions.

To better illustrate their differences, here is a comparison between the three sets of standards: