In the dynamic world of sustainability reporting, the Corporate Sustainability Reporting Directive (CSRD) marks a striking turning point. With a focus on digitalisation and transparency, the CSRD mandates the use of XBRL (eXtensible Business Reporting Language) for reporting in XHTML format. This transition to digital tagging is about to profoundly change the way companies disclose their environmental, social and governance (ESG) information.
XBRL, originally developed in 1998 for financial information, is a set of specifications for digital business reporting. It replaces traditional paper or PDF reports with machine-readable forms. Reports in XBRL format use a taxonomy to define human-readable and machine-readable terms, creating a digital representation of reporting rules.
The CSRD embraces XBRL and harmonises sustainability disclosure with financial reporting standards. Other sustainability reporting frameworks, such as those from the Sustainability Accounting Standards Board (SASB), demonstrate the potential to improve the availability and quality of ESG data through the use of an XBRL taxonomy. However, the process of XBRL tagging in sustainability reporting requires additional time and calls for supplementary validation and quality controls.
Companies subject to the CSRD must prepare their ESRS data in XHTML format, which is both human-readable and serves as the basis for XBRL tagging.
Before XBRL tags are applied, the organisation must identify which information should be labelled as ESRS-related, including environmental, social and governance indicators.
For each ESRS-related date, text or figure, a specific XBRL tag is assigned, creating standardised codes that describe the meaning and context of the information.
Companies must select the correct XBRL taxonomy that corresponds to ESRS guidelines and the nature of their business activities. However, for the CSRD and the related ESRS data points, this taxonomy is not yet available.
Using specific software, the assigned XBRL tags are embedded in the XHTML report, making it both human-readable and machine-readable.
After tagging, the report undergoes validation processes and quality controls to ensure that XBRL tags have been correctly applied and that information is consistent and accurate.
After tagging and validation, the report can be submitted to regulatory authorities. Companies must consider how they make the digitalised report available to stakeholders.
With the integration of digital tagging principles through CSRD, companies must prepare for the impact on their reporting processes. Lessons from XBRL adoption in financial reporting highlight the need for standardisation and careful consideration of where specific information is placed. The digital tagging process extends the reporting timeline, for which sufficient time must be reserved by both companies and auditors.
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