CSRD, VSME & ESRS 2.0: A guide for decision-makers. Who is affected - and when?

What companies need to know - and do - now

The EU regulatory landscape for sustainability reporting is undergoing changes. With its Omnibus Proposal, the European Commission aims to streamline and simplify key parts of the Corporate Sustainability Reporting Directive (CSRD), European Sustainability Reporting Standards (ESRS), and related regulations such as the Corporate Sustainability Due Diligence Directive (CSDDD) and Taxonomy Regulation. But what are the current rules – and what can we expect on the horizon? 

Status quo CSRD: Who has to report and when?

To fully understand the impacts of the current European sustainability regulation, we must first delve into key changes planned with the Omnibus packages. The European Parliament is currently in its summer recess, with plenary sessions scheduled to resume in early September. It means now is a good time to review the EU’s progress in simplifying sustainability rules.

To provide some background context, the Corporate Sustainability Reporting Directive (CSRD) came into effect in early 2023, with the European Sustainability Reporting Standards (ESRS) released shortly after. The CSRD introduces mandatory sustainability reporting in four waves for companies within the EU and non-EU companies with subsidiaries in the EU:

Wave 1: Companies previously subject to the Non-Financial Reporting Directive (NFRD)

Who?EU public interest entities (PIEs) such as large listed companies, banks and insurance companies with more than 500 employees in the EU.
Requirement: Mandatory reporting for the first time in 2025 for the financial year 2024.

Wave 2: Large companies (non-EU listed)

Who? Companies that fulfil at least two of the three following criteria:

• More than 250 employees
• Total assets > EUR 25 million
• Turnover > EUR 50 million

Requirement: Mandatory reporting for the first time in 2026 for the financial year 2025.

Wave 3: Listed SMEs, small and non-complex credit institutions

Requirement: Mandatory reporting for the first time in 2027 for the financial year 2026.  

Transitional provision: Listed SMEs may defer their reporting duty for two years and report for the first time in 2029 on the financial year 2028. 

Wave 4: Non-EU Companies with a subsidiary in the EU

Who? Companies that:

• Generate turnover of at least EUR 150 million in the EU and
• Are either the parent company of an EU subsidiary that is a ‘large company’ or listed SME according to CSRD; or
• Has at least one EU subsidiary with turnover exceeding EUR 50 million

Requirement: Mandatory reporting for the first time in 2029 for the financial year 2028.  

Note: Non-EU companies falling under Wave 4 must base their reporting on the NESRS (reporting standards for non-EU companies); these are due to be published as delegated acts by 30 June 2026. 

Omnibus proposal - less obligation, more clarity?

In February 2025, the EU Commission published the Omnibus Proposal. The aim is to reduce administrative burdens and increase the EU's competitiveness. It consists of the following key elements:  

‘Stop-the-clock’ amendment - reporting deadline extended for waves 2 & 3

On 14 April 2025 the EU Parliament approved the ‘Stop-the-clock’ mechanism of the EU Commission with the following amendments:

• postponing CSRD reporting requirements by two years for:
  • (1) companies due to report in 2026 for FY 2025 (‘wave 2’ companies); and
  • (2) companies due to report in 2027 for FY26 (‘wave 3’ companies); and
• postponing the transposition deadline of the CSDDD by one year.

Content Proposal – limitation of the scope of application  

The EU Commission also proposed limiting the scope of companies required to report. Now, in-scope companies are those with:

• More than 1,000 employees and
• Either total assets of > EUR 25 million or turnover of > EUR 50 million

Non-EU companies with subsidiaries in the EU will need to report only if they:

• Generate turnover of > EUR 450 million in the EU and
• An EU subsidiary generates turnover of > EUR 50 million

Further changes:

• Listed SMEs would be exempt from CSRD reporting requirements.
• Requests for information on the value chain should be limited to the data points covered by the Voluntary standard for non-listed micro-, small- and medium-sized undertakings (VSME).
• This proposal also exempts all EU PIEs with fewer than 1,000 employees from the reporting obligation.  

Impact:The number of companies in the EU required to report would fall from around 50,000 to less than 10,000, putting around 80% of companies out of scope. In order for this proposal to come into force, it must be approved by the Council of the EU and the EU Parliament. 

Further developments

On 23 June 2025 the Council of the EU adopted its position, which goes further that the EU Commission’s proposal. The Council’s position states that only companies fulfilling the following criteria need to report under CSRD:  

• More than 1,000 employees and
• Turnover exceeding EUR 450 million.

This reduces the number of companies in scope for the reporting requirement to approximately 5,000, exempting around 90% of companies originally falling under the CSRD. Furthermore, the Council also proposed postposing the need for climate transition plans by two years and setting a limit for the collection of information from value chain actors. Value chain actors with fewer than 1,000 employees need only provide data points contained in the VSME and can decline any further data requests. The various parliamentary groups have tabled over 800 amendments, with thresholds ranging from 250 to 3,000 employees.

Negotiations between the Council and Parliament commenced on 15 July 2025, with a final vote on the amendments not expected until October 2025 at the earliest. . 

Revised ESRS 2.0

Furthermore, the EU Commission has proposed to revise the CSRD and in March 2025 formally requested the European Financial Reporting Advisory Group (EFRAG) to simplify the existing ESRS standards. EFRAG is currently working on simplifying the ESRS standards. In its progress report of 19 June 2025, EFRAG announced the following changes:

• Simplification of the double materiality assessment (DMA)
• Better readability/conciseness of the sustainability statements and better inclusion in corporate reporting as a whole
• Critical modification of the relationship between minimum disclosure requirements (MDR) and topical specifications
• Improved understandability, clarity and accessibility of the standards
• Introduction of other suggested burden-reduction reliefs
• Enhanced interoperability

A key outcome of the report is that the number of data points should be cut by over 50% compared to the original CSRD data requirements as almost all voluntary disclosures are to be removed.

The ESRS Exposure drafts were released by EFRAG on 31 July 2025. They provide for:

• A 57% reduction of mandatory data points
• A 68% reduction in the total number of mandatory and voluntary disclosures
• Elimination of some voluntary disclosures
• Removal of overlap between disclosures
• Introduction of relief and exemptions for undue cost or effort

Public consultation on these drafts is planned from 31 July until 29 September 2025. The final version of the ESRS 2.0 standard is expected to be submitted to the EU Commission on 30 November 2025.  

Relief for wave 1 companies

As the Omnibus proposal affects only wave 2, 3 and 4 companies, wave 1 companies are expected to continue their reporting in the financial years 2025 and 2025. As relief for wave 1 reporting companies (EU PIEs, banks and insurance providers) the EU Commission adopted a quick-fix delegated act in July 2025. The quick-fix amendments allow companies in the first wave to continue applying the phase-in arrangements for the reporting cycle in financial years 2025 and 2026.

As a result, wave 1 companies are expected to continue applying the original CSRD standards with the above-mentioned reliefs for the financial year 2025 and to adopt ESRS 2.0 from financial year 2027 onwards.

VSME: Standard to help SMEs start on their sustainability journey

The voluntary reporting standard for SMEs (VSME) was published by EFRAG in December 2024. The VSME is aimed at helping small and medium-sized enterprises (SMEs) communicate their sustainability practices to stakeholders along the value chain. This standard is voluntary and is not about compliance; rather, the VSME seeks to create a uniform framework that enables SMEs to communicate their sustainability information to banks, investors, customers and suppliers, relieving the burden of multiple uncoordinated ESG data requests.  

The VSME standard has reduced the complexity related to sustainability reporting by using a simple modular approach and removing the need for a materiality analysis, thereby ensuring that the workload and resources needed for sustainability reporting are aligned to SMEs’ capabilities. A significant advantage of the modular setup of the VSME is that companies can start reporting with just the basic module initially and, as the data quality and collection process mature, companies can gradually move onto the comprehensive module without the pressure of mandatory reporting. This enables SMEs to manage sustainability-related risks that could affect their operations. They also get access to better financing options as banks and investors today regularly verify sustainability credentials before providing financing.  

Furthermore, in its statement on 30 July 2025 the EU Commission recommends that non-listed SMEs and micro companies actively adopt the VSME as this will help SMEs assess their resilience in regard to sustainability issues and help improve their competitiveness in their respective industries.  

What can be expected next?

Further negotiations at the level of the EU Parliament are planned for 1 September and 22 September 2025, with a vote on the amendments scheduled for 13 October 2025. This vote will determine the EU Parliament’s proposal on the Omnibus proposal.

The Trilogue negotiations between the EU Commission, Council of the EU and EU Parliament on the Content Proposal will take place from October to December 2025. The final vote and adoption of the Omnibus into a legal act will be in late 2025 or early 2026.

Once the final version of the ESRS 2.0 technical draft has been submitted by EFARG to the EU Commission on 30 November 2025, the technical draft will have to be published in a delegated act within six months of the CSRD threshold being finalised by the EU Commission, Council of the EU and the Parliament. Once completed, the new ESRS 2.0 will finally be published in the EU Official Journal two months after the delegated act is published.

What can companies do to overcome these uncertainties?

Until the CSRD and Omnibus proposals and the thresholds for companies have been agreed at EU level, the regulatory framework remains uncertain. Nevertheless, companies can already take action now:

• Dedicate resources to close gaps and set up data collection processes for data points related to emissions, governance and core social metrics like health and safety.  
• Consider the VSME reporting standard as a pragmatic and efficient alternative to the CSRD – especially for SMEs.
• Focus on sustainability topics that create long-term value for businesses. Banks, credit institutions and investors will demand sustainability data when providing loans and credit in the future – irrespective of the scope of the CSRD.
• Ensure that collected sustainability data is accurate, reliable and ready for limited assurance by building robust governance and internal controls.
• Keep track of developments at the level of both the EU and member states to stay ahead of potential compliance variations in different countries.

  We will be happy to answer any questions or provide assistance regarding the Omnibus package, VSME reporting or the new ESRS 2.0 drafts. You can reach us at sustainability@bdo.ch.