Intro

The EU's sustainability legislation continues to evolve, making it challenging for organizations to navigate between mandatory requirements and voluntary practices in sustainability reporting. In this article, we aim to clarify what XBRL is, what its implications are for your company, and when it will be expected to come into effect.  

‍What is the XBRL?

XBRL (eXtensible Business Reporting Language) is an international standard for digital reporting that enables data sharing and comparison of data. XBRL tagging involves assigning standardized tags to specific pieces of data so that data can be accurately analyzed by both machines and humans. Large quantities of data can quickly be accessed, which provides transparency and minimizes errors. It’s already applied to financial statements and will eventually be used for sustainability statements accordingly.

What are XBRL taxonomies?

The XBRL Taxonomy defines a set of human and machine-readable terms providing a digital representation of disclosure rules through XBRL tags. Think of the XBRL standard as the alphabet and grammar for digital reporting, and XBRL taxonomies as dictionaries for digital reporting, defining business concepts and enabling the tagging of reported facts for identification by software. For instance, tags like “ProfitLoss” and “EnergyConsumed” give specific digital meanings to net earnings and energy consumption, respectively.

These taxonomies are tailored to specific reporting areas, capturing a set of rules in a digital format to ensure consistency, comparability, and machine readability. While the XBRL standard provides the fundamental structure for digital reporting, taxonomies supply the necessary vocabulary, which can vary across different regions and sectors, such as large corporations versus SMEs, and industries like banking and insurance.

What is the ESRS XBRL taxonomy?

XBRL tagging will come into force for both the EU Taxonomy and the CSRD, to tag the sustainability statement. The XBRL taxonomy for the European Sustainability Reporting Standards (ESRS) is usually called the ESRS XBRL Taxonomy. This XBRL taxonomy is designed to support companies reporting their sustainability data in compliance with the ESRS, which is part of the EU's Corporate Sustainability Reporting Directive (CSRD). The ESRS XBRL Taxonomy comprises a set of XBRL tags, assigning these to different sustainability-related information. It mirrors the structure of the ESRS and facilitates more transparent and comparable sustainability reporting across organizations.

What is the Article 8 XBRL taxonomy?

The Article 8 XBRL Taxonomy supports the digital reporting of disclosures related to the EU Taxonomy, a regulation published in 2020 as part of the sustainable finance initiative. Named after Article 8 of the EU Taxonomy Regulation, this taxonomy facilitates the digital reporting requirements of environmental sustainability metrics by companies in compliance with the EU Taxonomy. While the Article 8 XBRL Taxonomy aligns with the broader CSRD framework, it remains distinct from the ESRS XBRL Taxonomy because it specifically addresses the EU Taxonomy’s environmental objectives.

When does the XBRL tagging come into force?

The digital reporting requirements have not yet been adopted as a delegated act, meaning they are currently not in effect. In August 2024, EFRAG submitted its proposed XBRL taxonomy to the European Commission (EC) and the European Securities and Markets Authority (ESMA). Based on this taxonomy, ESMA will develop the draft for tagging sustainability reporting.  

‍Current status

As of October 2024, the adoption of XBRL tagging remains voluntary, and companies are not required to implement it until the digital taxonomy is formally adopted as an amendment to the European Single Electronic Format (ESEF) Delegated Regulation. There are indications that the adoption may be delayed by another year, and likely, the XBRL tagging requirements will not be implemented until 2026.

While there may be a growing sense of urgency to adopt XBRL tagging due to its advantages and the trajectory of regulatory changes, companies are not yet obligated to implement it. Organizations can, however, choose to voluntarily adopt XBRL tagging to stay ahead of regulatory changes and enhance their sustainability reporting practices.

Conclusion

As the landscape of sustainability reporting evolves, so does our software. Although the adoption of XBRL tagging is currently voluntary, the need for enhanced transparency and data accuracy is undeniable. Digital tagging will become mandatory once the European Commission adopts the XBRL taxonomies. Until then, we remain dedicated to staying up-to-date with these developments and committed to providing our customers with software solutions that streamline sustainability reporting. We feel well-equipped to meet this changing regulatory landscape.

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