The CSRD significantly expands the non-financial reporting duties initially introduced by the NFRD, incorporating a crucial update where sustainability statements must be machine-readable. Businesses are required to display their sustainability data in a defined online layout, with a digital taxonomy for tagging. This mandate is aimed at enhancing stakeholders’ accessibility, simplifying and expediting data analysis and comparison, and eventually diminishing costs for both the users and creators of the statements. 

Regulatory Background

As per the guidelines outlined in Article 29d of the CSRD [1], organizations are now mandated to adhere to the digital reporting requirement. This necessitates that entities enhance their sustainability reports in compliance with the European Single Electronic Format (ESEF) regulation [2].  

Consequently, companies must issue their sustainability declarations in the Extensible Hypertext Markup Language (xHTML) format, augmented with Inline XBRL-Tags (iXBRL). This broadens the application of XBRL (eXtensible Business Reporting Language), a uniform business and financial information format, also encompassing sustainability data. 

EFRAG, an organization offering technical guidance to the European Commission, has published a preliminary version of the XBRL Taxonomy for sustainability data on February 8, 2024 [3]. Post public feedback, the finalized ESRS XBRL Taxonomy will likely be out in the third quarter of 2024. The European Securities and Markets Authority (ESMA) will then take it forward, crafting a regulatory technical standard (RTS) that outlines the details of digital tagging, including its timing and depth.  

The European Commission is scheduled to accept ESMA’s XBRL Taxonomy by early 2025. Ultimately, it will become obligatory for firms to release their digitally tagged sustainability reports on the European Single Access Point (ESAP). The ESAP is currently under construction and is projected to be functional by the summer of 2027 [4]. 

Understanding CSRD Digital Tagging Requirements

So basically, CSRD digital tagging is a requirement that mandates organizations to format their sustainability reports in a machine-readable way, facilitating better accessibility and usability of data. This involves applying digital taxonomies and specific tags to sustainability information, making it easier for users to extract, analyze, and compare data across different reports.  

The primary objective of digital tagging is to enhance transparency and efficiency in the reporting process by ensuring that sustainability data adheres to standardized formats, such as iXBRL, allowing stakeholders to navigate and interpret this critical information with minimal effort. By embracing CSRD digital tagging, companies can significantly improve their compliance with regulatory expectations while fostering greater accountability and trust among investors and the public. 

CSRD Digital Reporting Requirements: Key Elements

European Single Electronic Format (ESEF)

The ESEF serves as a standardized reporting framework designed to promote transparency and consistency across sustainability disclosures. This format mandates the use of specific standards, primarily focusing on XHTML for presentation, which is enriched with Inline XBRL (iXBRL) tagging.  

The intent behind the ESEF is to streamline the process of financial and sustainability reporting, ensuring that information is not only disseminated in a clear and standardized manner but is also machine-readable, allowing for easier aggregation and analysis by users. 

XBRL Taxonomy and Its Implications

The introduction of the XBRL taxonomy for sustainability data signifies a transformational shift in how organizations report their non-financial information. By requiring the application of a standardized taxonomy, the CSRD aims to create a common language that facilitates easier comparison and analysis of sustainability performance across different sectors. This initiative not only underscores the importance of accountability in sustainability practices but also encourages companies to adopt robust data management strategies that enhance the accuracy and reliability of their reported information. 

EFRAG’s Draft XBRL Taxonomy corresponds with the comprehensive structure of ESRS, incorporating two cross-sectional standards (ESRS 1 & ESRS 2) and a candidate set of ten subject-specific standards. This taxonomy covers three specific types of data points: 

• Numeric, quantitative data points or metrics, notable for their high degree of comparability. 

• Non-numeric yet comparable categories such as Boolean values, often identified as “semi-narrative”, enabling straightforward tagging and providing immediate comparability.  

• Narrative categories (text blocks), known for their lesser extent of direct and automated comparison. 

Reporting Deadlines and Compliance Timeline

As organizations prepare for the transition to ESEF and comply with these new expectations, it is crucial to stay abreast of the upcoming reporting deadlines. Companies will need to align their internal processes to ensure that their first digital sustainability reports, incorporating the requisite XBRL tagging, are ready for submission by the stipulated dates. Proactive planning and investment in technology that supports digital reporting will be vital for firms seeking to maintain compliance and leverage the benefits of the new reporting standards. 

What Are The Benefits Of Digital Reporting?

In light of these requirements, it’s essential for organizations to not only understand the implications of digital reporting but also to recognize the substantial benefits it can bring to their sustainability initiatives and stakeholder engagement: 

• Enhanced Transparency: Digital reporting significantly boosts transparency, allowing stakeholders to easily access and understand sustainability data. With standardized formats like iXBRL, organizations can ensure that their reports are machine-readable, which in turn makes it simpler for investors, regulators, and the public to analyze and compare information. This transparency not only helps in building trust but also holds companies accountable for their sustainability practices. 

• Improved Data Comparability: The use of standardized taxonomies facilitates a common framework for reporting sustainability performance across different sectors. This consistency means that stakeholders can effectively compare data from various organizations, enabling more informed decision-making. By providing a clear and structured way to report, companies can showcase their sustainability achievements and challenges in a manner that is readily understandable and comparable. 

• Increased Efficiency: Digital reporting streamlines the reporting process by reducing manual data entry and the potential for human error. Automated systems can populate required fields through digital tagging, which minimizes the time and effort needed to generate comprehensive reports. Additionally, the ability to update and revise reports electronically means that organizations can respond quickly to new regulations or internal changes, enhancing overall operational efficiency. 

• Better Data Management and Analysis: Transitioning to digital reporting frameworks encourages companies to adopt robust data management strategies. By leveraging technology to ensure that sustainability data is accurately captured and documented, organizations can enhance their reporting practices. The structured nature of digital formats allows for advanced data analysis techniques, making it easier to derive insights and track performance over time. This informed approach not only aids in regulatory compliance but can also lead to improved business strategies and outcomes. 

Preparing For The Digital Reporting Requirements

To successfully navigate the impending CSRD digital reporting landscape, companies must undertake a comprehensive assessment of their existing sustainability reporting frameworks. This should involve identifying gaps in current practices and determining what changes are necessary to align with the ESEF and XBRL taxonomy requirements. Developing a robust project plan will enable organizations to systematically address these gaps and to establish clear timelines for implementation. 

Furthermore, investing in appropriate technology and tools is essential for effective digital reporting. Companies should consider adopting reporting software that supports iXBRL tagging and facilitates the integration of sustainability data into their financial reporting processes. Such technology not only enhances data accuracy but also streamlines compliance workflows, ultimately allowing for more efficient preparation and submission of reports. 

Lastly, engaging and training key personnel is vital for fostering an organizational culture that prioritizes compliance and transparency. Organizations should ensure that teams responsible for sustainability reporting are well-versed in the new requirements and have access to continual learning resources. These initiatives will empower employees to effectively adhere to the upcoming standards and contribute to the overall credibility and trustworthiness of the company’s sustainability disclosures. 

How Seneca ESG Could Help Your Business

Seneca ESG’s EPIC platform offers a sophisticated solution for organizations seeking to streamline their digital reporting processes while ensuring compliance with emerging standards. With features designed for efficient data management and reporting, EPIC empowers businesses to produce transparent, machine-readable sustainability reports with ease. By integrating seamlessly into your existing workflows, our platform enhances data accuracy and provides valuable insights, allowing you to not only meet regulatory requirements but also improve stakeholder engagement and trust. Explore more about how EPIC can transform your sustainability reporting at Seneca ESG. 

References: 

[1] https://www.europarl.europa.eu/meetdocs/2014_2019/plmrep/COMMITTEES/JURI/DV/2022/07-13/CSRD-consolidatedtext-final_EN.pdf 

[2] https://www.esma.europa.eu/issuer-disclosure/electronic-reporting 

[3] https://xbrl.efrag.org/downloads/Draft-ESRS-Set1-XBRL-Taxonomy-Consultation-Questionnaire.pdf 

[4] https://br-ag.eu/2024/01/18/european-single-access-point-esap-to-be-available-from-2027/