The Corporate Sustainability Reporting Directive (CSRD) introduces strict digital reporting requirements to enhance the transparency, comparability, and accessibility of sustainability reporting. The move towards digitalisation aligns with the European Union's broader strategy to create a single digital market and leverage technology for better corporate governance.
This article will explain the CSRD digital reporting requirements to guide companies in directive compliance.
Understanding CSRD digital tagging requirements
CSRD mandates companies to prepare sustainability reports in a specified digital format to ensure data is machine-readable and easily accessible. This requirement aims to streamline sustainability data processing and improve the reported information's findability, comparability, and usability.
Key elements of CSRD digital reporting requirements
Single electronic reporting format (ESEF)
Companies must prepare their management reports, including sustainability information, in the electronic reporting format specified in Article 3 of Commission Delegated Regulation (EU) 2019/815. This format necessitates using XHTML for human-readable reports and inline XBRL for machine-readable data. Digital tagging (or markup) of sustainability information is essential to ensure the data can be accurately analysed and compared across different companies and sectors.
Digital taxonomy for sustainability reporting
A digital taxonomy reflecting the European Sustainability Reporting Standards (ESRS) is being developed to facilitate the structured tagging of sustainability information. This taxonomy will be crucial for ensuring that all necessary data points are covered and that reports are easily navigable and analysed by stakeholders. The ESRS XBRL Taxonomy is specifically structured to allow for the disaggregation of data points, assisting precise machine-readable reporting and avoiding overlapping tags.
Transition to digital reporting
During the initial stages of CSRD implementation, companies may use transitional provisions to adapt to the digital reporting requirements. This phase allows them to use existing digital reporting practices while gradually integrating the specified formats and standards.
Modern companies rely on CSRD software to support their journey toward improved ESG performance and compliance with ESG regulations.
Implementing digital reporting requirements
1. Preparing digital reports
Companies should prepare their reports using structured templates and guidelines provided by ESRS. This includes ensuring all required data points are covered and correctly tagged. Implementing robust IT systems capable of handling XHTML and XBRL formats is critical. Companies should also integrate their financial reporting systems with sustainability reporting capabilities to streamline the digital tagging process.
2. Tagging and data mark-up
Accurate and comprehensive tagging of sustainability data is essential. Companies should use digital tools that facilitate the tagging process, ensuring all disclosures are correctly marked up according to the ESRS XBRL Taxonomy. Training key personnel on using digital tools and adherence to tagging guidelines will ensure the correctness and reliability of the reported data.
3. Stakeholder engagement and transparency
Transparency in digital reporting enhances compliance and builds stakeholder trust. Companies must ensure their digital reports are easily accessible on their websites, as mandated by CSRD, and engage with stakeholders to understand their needs and expectations regarding digital reporting.
Benefits of digital reporting
1. Enhanced accessibility and comparability
Digital reporting ensures that sustainability information is easily accessible to stakeholders, including investors, regulators, and the public. The machine-readable format enables quick and efficient comparison of sustainability performance across companies and sectors.
2. Improved data quality and reliability
The structured approach to digital reporting enhances the accuracy and reliability of sustainability data. Automated data processing reduces the likelihood of errors and ensures consistency in reporting.
3. Streamlined regulatory compliance
Digital reporting aligns with broader regulatory requirements and international standards, making it easier for companies to comply with EU and global sustainability reporting mandates.
The CSRD's digital reporting requirements represent a significant advancement in corporate sustainability reporting. By adopting the prescribed electronic formats and implementing the ESRS digital taxonomy, companies can enhance their sustainability information's transparency, comparability, and usability. This ensures regulatory compliance and contributes to better corporate governance and more informed decision-making by stakeholders.
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