Recommendation for Small and Medium-Sized Enterprises – A Step Towards Simpler Reporting
On July 30, 2025, the European Commission adopted a recommendation on voluntary sustainability reporting for small and medium-sized enterprises (SMEs). The aim of this recommendation is to help SMEs not covered by the Corporate Sustainability Reporting Directive (CSRD) to more easily respond to requests for sustainability information increasingly made by large companies and financial institutions—especially those legally required to conduct ESG reporting.
The new voluntary standard for SMEs (VSME) was developed by EFRAG, the European Financial Reporting Advisory Group. The aim of this standard is not introducing new requirements, but simplification — so that smaller businesses avoid excessive administrative requirements and can transparently communicate key ESG data. This enables SMEs to better access sustainable financing, strengthen resilience, and understand their own impacts in the area of sustainability — thus enhancing their market competitiveness. The recommendation also foresees that the future delegated act will serve as an “upper limit” for requesting ESG data in the value chain — thus aiming to prevent SMEs from being exposed to excessive demands from their business partners.
Although the final version of the delegated act is still awaited, this recommendation represents a transitional solution that sends a clear signal to the market — smaller businesses are given a tool for transparency without excessive administrative burden.
Omnibus Package and CSRD Directive Amendments – Simplification and Adaptation
During June and July 2025, the Council of the European Union adopted key amendments as part of the so-called “content proposals” which are part of the broader Omnibus package. The aim of these amendments is to reduce the administrative burden on businesses while maintaining transparency and the availability of quality, comparable data on sustainable business.
Key amendments include:
- narrowing the scope of reporting obligations — the new threshold covers only large companies with more than 1,000 employees and annual net revenues exceeding 450 million euros
- temporary exemptions — member states may allow postponement of obligations for companies with 500 to 1,000 employees, no later than December 31, 2026
- review clause — provides for the possibility of revising and expanding the scope of the directive in the future, according to market developments and user needs
- sectoral approach — the European Commission is tasked with preparing guidelines for the application of existing sectoral standards, given the temporary suspension of the obligation for sectoral ESRS standards
With these amendments, the EU Council aims to ensure a balance between regulatory efficiency and support for the competitiveness of European businesses, especially in the context of global challenges and the growing need for ESG transparency.
The Role of Croatia and Further Steps
The Republic of Croatia will harmonize its legislation with the new directives by the end of 2025, including amendments to the Accounting Act and the Capital Market Act.
Sustainability reporting is becoming an indispensable part of doing business in the EU and Croatia. The new regulations and recommendations for 2025 bring both challenges and opportunities — from simplification to greater transparency and better preparedness for the green transition.
Our advice: Follow the changes, use available tools, and improve your business in line with the highest sustainability standards.
TPA Croatia can support you in several ESG segments, depending on your needs:
- ESG Strategy consulting
- Supply chain due diligence
- Sustainability reporting
- ESG GAP Analysis
- EU Taxonomy
- ESG report assurance
Please keep in mind the fact that legislation tends to change frequently. This article is therefore necessarily based on our understanding and correct interpretation of the law and practice at the time of issuing this article. This article will not be updated due to changes in legislation that occur after this article is issued.