Overview of VSME and CSRD Compliance Options for EU Subsidiaries in the "Post-Omnibus" Era

Overview

EY Japan has released an analytical report titled "Overview of VSME and CSRD Compliance Options for EU Subsidiaries in the 'Post-Omnibus' Era". This report explains new options and strategic responses for sustainability reporting by Japanese companies operating in the EU. ## Key Points ### 1. Report Overview - **Publisher**: EY Japan - **Publication Date**: July 1, 2025 - **Main Theme**: Sustainability reporting strategy for EU subsidiaries - **Background**: Changing regulatory environment of CSRD (Corporate Sustainability Reporting Directive) ### 2. Overview of VSME (Voluntary Sustainability Reporting Standards for SMEs) - **Full Name**: Voluntary Sustainability Reporting Standards for SMEs - **Developing Body**: EFRAG (European Financial Reporting Advisory Group) - **Submission Date**: Submitted to European Commission in December 2024 - **Purpose**: Reducing reporting burden and standardization for non-listed SMEs ### 3. Structure of VSME - **Basic Module**: - Minimum disclosure requirements - Limited to important sustainability indicators - Simplified requirements suitable for SMEs - **Comprehensive Module**: - More detailed disclosure requirements - Content close to CSRD - Can meet requirements of major business partners - **Value Chain Cap**: - Limiting function for additional information requests - Protection from excessive reporting burden ### 4. Changes in Regulatory Environment Due to Omnibus Bill - **Consideration of Raising Application Thresholds**: - Number of employees: 250→500 - Revenue: €40 million→€80 million - Total assets: €20 million→€40 million - **Impact**: Many medium-sized companies will fall outside CSRD scope - **Note**: Information disclosure requests from business partners will continue ### 5. Three Response Options for EU Subsidiaries - **Option 1: Full CSRD Compliance** - Advantages: Fully meets regulatory requirements, maximum transparency - Disadvantages: High cost, heavy implementation burden - Suitable for: Large subsidiaries, strategically important companies - **Option 2: VSME (Basic Module) Application** - Advantages: Cost-efficient, standardized disclosure - Disadvantages: Limited information disclosure - Suitable for: Medium-sized subsidiaries, B2B-focused companies - **Option 3: Voluntary Minimum Disclosure** - Advantages: Lowest cost, high flexibility - Disadvantages: Credibility challenges, lack of standardization - Suitable for: Small subsidiaries, limited business relationships ### 6. Strategic Implications for Japanese Companies - **From Regulatory Compliance to Value Creation**: - Strategic approach beyond compliance - Sustainability as a source of competitive advantage - **Group-wide Consistency**: - Alignment of reporting systems between headquarters and EU subsidiaries - Coordination with global sustainability strategy - **Stakeholder Management**: - Managing business partner expectations - Information provision to investors ### 7. Practical Considerations - **Data Collection System**: - Identifying necessary KPIs and building collection processes - IT system development - Establishing internal controls - **Talent and Skills**: - Expertise in sustainability reporting - Training of local staff - Utilizing external experts - **Cost-Benefit Analysis**: - Implementation and operational costs of each option - Expected business value - Risk assessment ### 8. Industry-Specific Considerations - **Manufacturing**: Need for supply chain-wide response - **Finance**: Consideration of impact on investment and lending destinations - **Retail**: Emphasis on consumer communication - **IT/Services**: Data security and privacy ### 9. Developing a Transition Plan - **Current State Assessment**: - Gap analysis of current reporting system - Organizing stakeholder requirements - **Phased Approach**: - Short-term: Responding to minimum requirements - Medium-term: Full implementation of selected option - Long-term: Continuous improvement and upgrading - **Monitoring**: - Continuous understanding of regulatory trends - Regular review of implementation status ### 10. Future Outlook and Recommendations - **Responding to Regulatory Fluidity**: - Awaiting finalization of Omnibus bill - Building flexible response systems - **Pursuing First-Mover Advantages**: - Competitive advantage through early response - Establishing best practices - **Integrated Approach**: - Integration with financial reporting - Promoting digitalization - Harmonization with global standards This report provides practical guidance for Japanese companies operating in the EU to ensure compliance while creating business value in a changing regulatory environment. It emphasizes the importance of viewing sustainability as a strategic opportunity beyond mere regulatory compliance.