Digital Sustainability Reporting: Understanding the ESRS XBRL Taxonomy

The European Union (EU) is advancing its sustainability agenda through the implementation of the first set of the new European Sustainability Reporting Standards (ESRS). At the heart of this framework lies the ESRS Data Point List and the ESRS XBRL tagging system, which defines how sustainability data will be structured and communicated in the near future.

The ESRS XBRL tagging system is undergoing development under the guidance of the European Financial Reporting Advisory Group (EFRAG). Recent advancements by EFRAG have led to the release of a draft version of the digital taxonomy for the published ESRS (Set 1), now accessible via the EFRAG website. This marks a significant milestone and sets the stage for the development of common technical tagging standards, the Regulatory Technical Standards (RTS).

Within this blog post, we delve into the ESRS XBRL tagging system, providing orientation for practitioners navigating this evolving sustainability landscape. Our aim is to equip sustainability practitioners with the foundational understanding required to integrate digital sustainability reporting into the reporting processes of their companies.

👉 Please note that the taxonomy is still in development and will undergo further revisions. The final version of the ESRS XBRL taxonomy is expected to be released in the second half of 2024.

ESRS XBRL Taxonomy: The Basics

What is the ESRS XBRL Taxonomy?

XBRL is short for „Extensible Business Reporting Language“ and serves to standardize the reporting flow from the information provider to the information recipient. XBRL can be imagined as a modular system of individual reporting elements for the digital reporting of company information. For certain reporting purposes, reporting templates are developed that describe the relevant elements and links, which are known as taxonomies.

EFRAG has been assigned the responsibility of developing an XBRL Taxonomy that reflects the novel sustainability reporting standards (ESRS), enabling companies to categorize sustainability data in a structured, machine-readable manner.

With the developed ESRS XBRL taxonomy, companies reporting under CSRD will be able to tag and digitalize their sustainability disclosures.

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The taxonomy utilizes Extensible Markup Language (XML) as its foundation. XML is currently employed in financial reporting and serves as a method for structuring business information in a digitally accessible format.

Who Needs to Implement the ESRS XBRL Tagging and Why is it Important?

Companies that are required to report under CSRD will need to implement the ESRS XBRL tagging to transform their sustainability reporting disclosures into a computer-understandable format.

A machine-readable ESRS XBRL taxonomy marks a substantial advancement towards making sustainability reporting digitally accessible and compliant with the Corporate Sustainability Reporting Directive (CSRD).

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By outlining the individual disclosure items from the narrative legal text of the ESRS, the process of digital ESRS XBRL tagging will simplify the automated analysis and consumption of data points, while effectively minimizing the risk of redundancies and manual errors during data transformation.

In this manner, standardized digital datapoints can be made accessible for external analysis and auditing in real-time, while also serving as a basis for companies to tell their very own sustainability journey in their polished narrative reports.

ESRS XBRL Taxonomy Structure Explained

The ESRS XBRL taxonomy represents the architecture and content of the standards in a digital format:
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‍It mirrors the structure of the ESRS, comprising the two cross-cutting standards (ESRS 1 and ESRS 2) and the ten topical standards involving Environmental (E), Social (S), and Governance (G) topics.

An important aspect of the ESRS XBRL taxonomy is its emphasis on the interrelation between the cross-cutting and topical ESG standards by, for example, linking general requirements with certain targets, policies or metrics from the topical ESG standards.

Understanding the Frame and Structure

To better understand the ESRS XBRL Taxonomy, get familiar with the content and structure of the ESRS disclosure requirements, as these are converted into a digital XBRL elements (more information below):

• Cross-cutting standards
   
  • ESRS 1 (General requirements)
  • ESRS 2 (General disclosures)
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• ESG Topical standards 
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  • ESRS E1 - E5: ESRS E1 (Climate change), ESRS E2 (Pollution), ESRS E3 ( Water and marine resources), ESRS E4 (Biodiversity and ecosystems), ESRS E5 (Circular economy)
  • ESRS S1 - S4: ESRS S1 (Own workforce), ESRS S2 (Workers in the value chain), ESRS S3 (Affected communities), ESRS S3 (Consumers and end users)
  • ESRS G1 (Business conduct)

Overview of XBRL Digital Elements

Cross-cutting standard ESRS 1 (General requirements)

ESRS 1 explains the concepts and principles to apply when preparing and presenting ESG information and therefore does not involve specific disclosure requirements that can be directly transformed into digital elements of the taxonomy. The content of ESRS 1 is nevertheless taken into account to model the taxonomy for the topical ESG standards.

For example, ESRS 1 requires companies to define time intervals for reporting on short-term, medium-term, and long-term horizons. These requirements will be incorporated into the taxonomy for tagging corresponding ESG disclosures, covering both quantitative and qualitative data points.

Cross-cutting standard ESRS 2 (General disclosures)

ESRS 2 outlines the general level of information that companies must provide across the topical ESG standards.

For the ESRS XBRL taxonomy, the content of ESRS 2 is divided into:

1. General Disclosure Requirements referring to the Disclosure Requirements (DRs) for the list of separate data points related to the defined Basis for Preparation (BP), and reporting areas Governance (GOV), Strategy (SBM) and Impact, risk and opportunity (IRO)

2. Disclosure Contents referring to the Minimum Disclosure Requirements (MDRs) on Policies (MDR-P), Actions (MDR-A), Targets (MDR-T) and Metrics (MDR-M). The Minimum Disclosure Requirements play a relevant role in the preparation of disclosures: Imagine them as a centralized table structure for presenting information for material topics across the topical ESRS.

👉For a recap on the structure of ESRS 1 and 2, visit our previous blog article on the cross-cutting standards. For a recap on materiality, visit our article on double materiality.

Topical ESG Standards

= ESRS E1-E5 (Environment), ESRS S1-S6 (Social) and ESRS G1 (Governance)

The topical ESG standards present disclosures for companies to report on specific environmental (E1-E5), social (S1-S6) or governance (G1) topics. As outlined above, the topical ESG standards partly reflect the Disclosure Requirements of ESRS 2, and partly cover Disclosure Requirements that are specific to a given environmental, social or governance matter. 

Therefore, for the ESRS XBRL taxonomy, the the topical standards can be divided into:

1. ESRS 2-Related Disclosure Requirements
2. Disclosure Requirements in topical standards

1. ESRS 2-Related Disclosure Requirements

= linked to ESRS 2 IRO 1 (Impact, risk and opportunity 1) or ESRS 2 SBM 3 (Strategy 3) or ESRS 2 GOV (Governance)

Consider the ESRS 2-related Disclosure Requirements (DR) and Application Requirements (AR) that apply across various topical standards as extensions of the ESRS 2 content. These extensions are represented in this section of the XBRL taxonomy.

Exception: SBM-3 is optional to report in the topical standards.

2. Disclosure Requirements in topical standards

= linked to topic-specific ESG matters, that is Environment (E1-E5), Social (S1-S6) and Governance (G1)

Disclosure Requirements (DRs) within each topical standard are distinctly defined and labeled with numbers (e.g., Disclosure Requirement E1-1) in each corresponding ESRS. The associated information is digitized within each topical standard, reflecting disclosure requirements at a topical level.

EFRAG has released a Datapoint List in Excel format, which contains the complete list of all Disclosure Requirements and references on the basis of separable data points. This Datapoint List represents the basis for structuring the digital ESRS XBRL taxonomy and helps to get a first overview over the number and nature of data points that need to be reported.

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👉 For a recap on the (Draft) ESRS Data Points List published by EFRAG, visit our previous blog article: Decoding ESRS Data Points: A Practical Guide. 

Understanding the Process: ESRS XBRL Tagging Explained

The ESRS XBRL Taxonomy comprises a set of XBRL elements, also known as tags (or “concepts''). Assigning these elements to reporting contents is referred to as XBRL tagging. This process enables companies to identify, navigate, and retrieve digital disclosures from the ESRS.

Please note that you need to have an XBRL software tool to be able to read the “XBRL language” and open the XBRL taxonomy file provided by EFRAG. You can visit software.xbrl.org for a list of certified tools that can process XBRL taxonomies. In addition, EFRAG also provides a human-readable version of the XBRL Taxonomy in Excel for illustration purposes.

The XBRL taxonomy file shows folders (or “roles” in XBRL language) that reflect the structure of the standards as described above. If you click on a single standard, for example ESRS E1-5, it shows particular XBRL attributes, such as data types and dimensions that are related to this standard (see below).

Data Types in the ESRS XBRL Taxonomy

The data types employed in the tagging of sustainability statements encompass both a quantitative format, referring to numerical disclosures, and a qualitative format, referring to narrative or semi-narrative disclosures. The specific format of single data points needs to be tagged accordingly when applying the ESRS XBRL Taxonomy, as far as the company is able to automatically extract separable information.

Data types are:

• Numerical: Quantitative data points, such as monetary amount, percentage or volume value
• Semi-narrative: Descriptive, comparable elements that can be associated with a specific category, such as binary choice (boolean type: yes/no) or a dropdown value selection (enumeration type: item list)
• Narrative: Text blocks providing qualitative information

💡 Up to 70% of the total ESRS data points are narrative disclosures.

While numerical data points are highly comparable between companies, comparability decreases for narrative data data points. Semi-narrative elements can be used to enrich the unstructured narrative disclosures.

The amount of narrative disclosures underlines the nature of sustainability information, where, unlike financial statements, qualitative information in the form of narrative text does not simply complement monetary figures in the report. Instead, qualitative information is disclosed as a distinct element and has equal importance.

Dimensions in the ESRS XBRL Taxonomy

In addition to defining quantitative (numerical) and qualitative (narrative) XBRL elements that reflect ESRS data points, the Draft ESRS XBRL taxonomy includes dimensions that allow for the breakdown of digital disclosures.

There are two dimension types in the XBRL taxonomy:

1. Explicit dimensions, which are provided as a pre-defined list of elements (also called dimension members), such as country, gender, GHG type etc.
2. Typed dimensions, which are specific to certain entities and need to be reported in this context, such as geographical areas, policies, targets, operating segments, etc.

Example of the XBRL View (“Presentation Linkbase”)

The structured view of the ESRS XBRL elements in the XBRL software tool is called “presentation linkbase” or “presentation relationships”. Each XBRL element has a unique ID in the system, is identifiable by its technical name and comes with a brief description of its labels. The elements are grouped according to the Disclosure Requirements and are shown as a tree structure in the presentation linkbase view, highlighting the interrelationships and corresponding attributes. 

Additionally, the linkbase for each element shows the data types and the references to the ESRS, where this DR is defined in the ESRS, with the precise paragraph number for most XBRL elements and, where applicable, other standards or EU legislation. 

The image below provides an example of the presentation linkbase for ESRS E1-5 with the quantitative and qualitative separate data points that need to be reported for this standard.

👉 Dimensions and other attributes that specify a certain standard will open up in an additional view when clicking on it.

Inline XBRL Tagging

A straightforward form of tagging is Inline XBRL or “iXBRL” tagging. Inline XBRL (iXBRL) offers a way to embed XBRL tags within HTML documents. This combines the advantages of tagged data with a human-readable report format, allowing it to be viewed in a web browser.

Inline XBRL provides a verifiable way to convert narrative reports into facts in a generated XBRL document. The tagging of Inline XBRL documents can be done in a flexible way and does not require to present the disclosures in table structures.

As a result, Inline XBRL tagging enables the generation of sustainability reports that are both human-readable and machine-readable.

👉  Please note, that EFRAG develops the Draft ESRS Set 1 XBRL taxonomy labels in English only. The European Commission (EC) will subsequently handle the translation, adoption, and publication in the Official Journal.

Outlook 

Expected Timeline for the ESRS XBRL Taxonomy

It is anticipated that the final XBRL taxonomy will be presented to the European Commission (EC) and the European Securities and Markets Authority (ESMA) during the summer of 2024.

Next, ESMA will review the taxonomy and create the draft Regulatory Technical Standards (RTS) for tagging sustainability reports under the ESRS. The tagging rules will ultimately be adopted by the European Commission (EC) in the European Single Electronic Format (ESEF).

The ESEF format is used for disclosing annual financial reports in line with the International Financial Reporting Standards (IFRS) consolidated financial statements. This digital reporting format is now being extended to include non-financial reporting within the EU.

👉 Considering the time required for the process and translation, this is not expected to be finalized this year. Consequently, companies may be required to begin digital reporting for the 2025 fiscal year. 

Related Draft Article 8 XBRL Taxonomy

EFRAG has been assigned to develop the Sustainability Reporting Digital Taxonomy for the Article 8 disclosure requirements, as outlined in Delegated Regulation (EU) 2021/2178 (Article 8), which complements the EU Taxonomy Regulation. The information disclosed under Article 8 of Regulation (EU) 2020/852 will be included in the sustainability statement and must be tagged accordingly.

Notably, similar taxonomy features are employed in new versions of related taxonomies, such as the IFRS taxonomy, as disclosure standards and their digital models continue to evolve.

Get Ready for Tagging Your Sustainability Report according to the ESRS XBRL Taxonomy

Use software to create a machine-readable sustainability report and streamline your sustainability data processes. With the Sunhat software, you can:

• Efficiently collect the necessary qualitative and quantitative data for your disclosures.
• Ensure your data points are accurately reported according to the Disclosure Requirements (DRs) and Application Requirements (ARs) of the ESRS.
• Format your report for digital tagging in compliance with the ESRS XBRL Taxonomy.

👉 Using Sunhat, you can simplify the entire process, maintain compliance, and focus on presenting your sustainability story with confidence.