New Digital CSRD Disclosures to Equip Your Sustainability Reporting
In the ever-evolving landscape of corporate reporting, sustainability reporting has become a key focus for businesses aiming to demonstrate their commitment to environmental, social, and governance (ESG) issues. With the introduction of the Corporate Sustainability Reporting Directive (CSRD), companies are now required to provide more detailed, standardised and comparable sustainability information. This is where digital ESRS taxonomy play a pivotal role.
The Importance of Digital Tagging in Sustainability Reporting
When it comes to sustainability reporting, integrating digital tagging from the outset is essential. The use of XBRL (eXtensible Business Reporting Language) format—a globally recognised standard for digital reporting—should be embedded in your reporting process from the very beginning. This ensures that your reports are not only human-readable but also machine-readable, making the data more accessible and comparable.
Why Use XBRL for Sustainability Reporting?
XBRL format enables users to access detailed and easily comparable information that might be missing in traditional human-readable reports. For instance, while human-readable reports may lack boolean data (such as yes/no or true/false statements), XBRL can capture this information, providing deeper insights. Additionally, as a technical advisor to the European Commission on CSRD, EFRAG (European Financial Reporting Advisory Group) has advised companies to adopt software that supports both human-readable and machine-readable formats. This dual approach is crucial as auditors now examine both types of documents, emphasising the importance of consistency and comparability in today’s disclosures.
Moving from Concept-Based to Decision-Usefulness Approach
The adoption of digital tagging marks a shift from a “concept-based approach,” where the focus of sustainability reporting is on information and narrative, to a “decision-usefulness approach.” This new method prioritises making the reported information comparable across different businesses, competitors, and decision-makers. It allows stakeholders to draw meaningful comparisons and make informed decisions based on standardised data.
Timeline: When Does Digital Reporting Come into Effect?
Digital tagging may not be mandatory for the first year of reporting, depending on whether the ESEF (European Single Electronic Format) regulation is amended in time for FY 2024. However, early adoption of XBRL for sustainability reporting is highly recommended to stay ahead of regulatory changes and ensure your reports meet the growing demand for transparency and comparability.
Harmonising Multiple Reporting Standards
Given the complex regulatory environment, combined with the rapidly approaching reporting deadlines, many companies aim to comply with multiple standards, not just one. Recognising this, XBRL International is working on creating concordance across various taxonomies, including GRI (Global Reporting Initiative), ESRS (European Sustainability Reporting Standards), and IFRS (International Financial Reporting Standards). This effort will streamline the reporting process and ensure consistency across different frameworks. Moreover, it will allow report-preparers reporting under several standards at the same time, opening opportunities for increased transparency and enhanced transformation.
Practical Example: Enhancing Clarity and Comparability
Consider a table of “health and safety metrics” in a human-readable report. Without digital tagging, users cannot easily verify the disclosure requirements that correspond to this information. They would need to manually cross-reference ESRS documents to understand whether the company uses the same units of measurement and adheres to the applicable granularity level. In contrast, a machine-readable format allows users to click on specific data points and instantly see the related disclosure requirements, enhancing clarity and comparability.
Benefits of Digital Tagging for Sustainability Reporting
Digital tagging in XBRL format significantly simplifies the analysis process, making it faster, more accurate, and more insightful. It connects companies directly with data users, providing verified information that supports precise analysis. This facilitates better comparisons of business performance and strengthens the overall credibility of the reported data.
Future Developments in XBRL Taxonomy
The XBRL taxonomy for CSRD reporting is currently in draft form, with completion expected by July/August 2024. Once finalised, EFRAG will hand the taxonomy over to ESMA (European Securities and Markets Authority) for approval. ESMA may also define phasing-in rules for digital tagging, which could potentially be mandatory in the future. Additionally, the ESAP (European Single Access Point) regulation will provide centralised access to publicly available information, further enhancing the transparency and accessibility of sustainability data.
Conclusion
As sustainability reporting becomes increasingly integral to corporate transparency, the adoption of digital CSRD reporting taxonomy in XBRL format is not just important—it’s essential. By embedding digital tagging into your reporting processes from the beginning, you can ensure that your sustainability data is accessible, comparable, and decision-useful, ultimately supporting better business outcomes and compliance with evolving regulations.
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