The EU Commission has published the draft final version of the voluntary reporting standard for smaller companies, along with the details of the so-called value chain cap.
The voluntary reporting standard now covers all companies with fewer than 1,000 employees (previously the VSME applied to companies with fewer than 250 employees). Importantly, the Commission also published how the value chain cap — through which larger companies under CSRD request information from their value chains — should function.
Our position
We commented on the proposals as follows:
We support the Commission's objective to reduce administrative burden and fragmented value-chain requests while preserving the quality of sustainability disclosures. The voluntary standard will function as the value chain cap: CSRD in-scope companies may not require value-chain undertakings with 1,000 employees or fewer to provide information beyond the cap for CSRD reporting purposes.
However, the current proposal risks making the capped dataset too limited for climate-related reporting, financing decisions and risk management. We recommend two targeted amendments.
1. Include "necessary if applicable" disclosures in the value chain cap
The draft explains that the value chain cap covers disclosures marked "necessary", while other categories, including "necessary if applicable", are outside the cap. This is too narrow. The cap should also include "necessary if applicable" disclosures where the stated condition applies.
This would not create a blanket obligation. It would only require information when the undertaking's circumstances make the disclosure relevant. Several important climate-related items are conditional by nature, such as climate-related strategy, transition initiatives, GHG reduction targets and the undertaking's assessment of climate risks.
2. Limit the 10-employee relief in climate-critical sectors
The draft gives extra protection to undertakings with 10 employees or fewer by making several disclosures voluntary for them. This may be proportionate for many micro-undertakings, but it should not apply automatically where the undertaking operates in a climate-critical sector.
This is especially important for property and real estate companies, but also to other asset-heavy or climate-relevant sectors, such as transport or the manufacture of wood products. Such undertakings may have significant energy use, GHG emissions, renovation needs, physical climate risks and transition risks despite having few or no direct employees.
For undertakings in climate-critical sectors, core environmental datapoints such as energy consumption, Scope 1 and Scope 2 GHG emissions, climate targets, transition planning and climate risks should remain necessary or necessary if applicable.
Example: as currently drafted, a real estate company with fewer than 10 employees could report only very limited information despite owning or managing climate-relevant assets: basic company information, employee data by contract and gender, accidents, minimum pay, collective bargaining coverage and training hours. These datapoints are of limited use compared to information on energy consumption, GHG emissions, climate targets, transition planning or climate risks.
Our recommendations
We recommend that the Commission:
- include "necessary if applicable" disclosures within the value chain cap when the condition is met; and
- limit the 10-employee relief so that it does not apply to undertakings in climate-critical sectors.
These amendments would preserve proportionality while ensuring that value-chain data remains meaningful for sustainability reporting, financing decisions and climate risk management.
Jukka Honkaniemi CEO, Selko Insights