If you are in the world of tax, finance or technology then you cannot avoid conversations on ESG. This was evident at this year’s XBRL Europe’s conference and at TP Minds International. Whilst ESG is at the forefront of many discussions, I found that many are focused more on what ESG means for them and their department. This has resulted in overlooking how the forthcoming ESG mandates will impact the wider business.
One piece of the ESG puzzle I found often forgotten is the digital reporting element. For many across the EU and in the UK, digital reporting is usually introduced following years of reporting the data in a non-digital format. However with ESG reporting this will not be the case for many. When the data is mandated to be disclosed, it will also be required in a digital format; more specifically through iXBRL tagging.
From XBRL Europe’s conference, one of the key messages I took away regarding ESG reporting is to make your disclosures 'Taxonomy Centric'. Having the digital reporting mandate from the outset gives issuers an opportunity to structure their disclosers in a format that makes their data more accessible for all users, leaning in to their ESG responsibilities.
Issuers can use the digital taxonomy as a guidance of the level of granularity they need to include in their disclosures. To go back to the purpose of iXBRL tagging and to make everything more comparable, this is a unique opportunity for issuers to make their ESG reporting as efficient as possible. This will provide easier usage from the outset for all stakeholders.
Of course we’re not implying that where the digital taxonomy doesn’t have an element for disclosed data, then you shouldn’t disclose this data in your report. There will always be elements where the company or industry has specific reporting elements that the taxonomy doesn’t include. This is to be expected, and that is why we have the option to extend tags or add typed dimensions. Having a 'Taxonomy Centric' approach will allow the issuer, to ensure that what is being disclosed is in line with the digital taxonomy. Thus, extensions don’t have to be unnecessarily created. This should help prevent the use of extensions for the more granular data, or when the data isn’t granular enough, and therefore doesn’t fit with the digital element for reporting.
So, what comes next? Well for EU companies, EFRAG has announced that the final version of its ESG taxonomy is expected by the end of September 2023. The mandate will impact companies from 2025, leaving just over a year for the first listed companies to publish their prepared annual reports containing the tagged ESG information. As for the UK, the recent confirmation of significant harmonisation between the EU’s approach and the International Sustainability Standards Board (ISSB), is very much welcomed. This will streamline the reporting for those in scope of the UK and the EU’s reporting mandates.
Whilst there are many unknowns, and we have yet to establish a final digital taxonomy, I would strongly encourage issuers to prepare early. If we have learnt anything from the ESEF reporting, it’s that those who prepare early are much more confident in their mandate digital submissions.
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