Environmental, Social, and Governance (ESG) reporting standards are continuously updated. This article explains how XBRL supports ESG reporting with regulatory bodies. Continue reading to learn more about ESG reporting and the functioning of XBRL.
XBRL for Digital ESG Reporting
Investors, lenders, regulators, and other stakeholders expect organizations to be transparent regarding their communication with the external environment. ESG metrics explain whether an organization nurtures or harms the environment and society and how it governs itself. When it comes to sustainability reports, they should be in digital document format so that the information becomes available in a machine-readable format. A static format, such as a PDF document, offers limited value to stakeholders.
eXtensible Business Reporting Language (XBRL) is a format that supports digital reporting and an open data standard for the digital communication of business information. It is a collection of elements that represent individual accounting concepts. Accounting standards such as GAAP are used for machine-readable reporting of financial information.
How Does It Work?
When a company prepares its sustainability or financial reports using special software, XBRL tags are inserted against the data or numbers in the reports. These tags should be drawn from the company’s region’s digital accounting standards or taxonomy. After completing the XBRL tagging process, the tags may be verified and reviewed in the validation process. The final document is both machine-readable and human-readable. Then this document can be filed with the national regulator.
XBRL reporting has become the reason for the revolution in financial reporting in several places, including the US, UK, and EU. Companies in these geographic regions have filed XBRL reports with their regulators for many years. One of the reasons why financial analysts, investors, banks, and other stakeholders prefer working with digital reports is the ease they bring to decision-making and analysis.
Benefits of Using XBRL for Sustainability Reporting
- Format Preferred by Stakeholders
Since XBRL makes their work easier, stakeholders prefer having business information in XBRL. - Commitment to Transparency
Adopting XBRL reporting indicates companies’ commitment to transparency. - XBRL as the preferred format
Proactively using XBRL for ESG reporting can help companies stay ahead of any future mandates. - More Streamlined Reporting Process
Adopting XBRL enables companies to use the powers of AI (Artificial Intelligence) and ML (Machine Learning).
What are the next steps to accomplishing ESG Reporting via XBRL
- Understanding the ESG Mandate and regulatory bodies readiness
To begin with digital sustainability reporting, you must understand the jurisdiction’s regulatory requirements. For example, companies in the US have to await the final decision of the SEC on its climate-related disclosure proposal. Likewise, companies in the EU should be prepared to use the European Sustainability Reporting Standards. - Understanding the ESG Framework
A set of sustainability standards is called a framework. Companies should use standards developed by the organizations such as the Task Force on Climate-related Financial Disclosures (TCFD), the Sustainability Accounting Standards Board (SASB), and the Global Reporting Initiative (GRI). - Selecting an ESG XBRL Software Provider
Selecting a vendor is a crucial step. You want to ensure A) they have the knowledge and expertise B) they can support your organization and needs and C) they are high quality. All three of these aspects are important to ensure your transition is smooth and you’re supported through it. XBRL, ISO an SOC certifications are important differentiators. - Formation of an ESG XBRL Reporting Process
Efficient sustainability reporting requires a foolproof reporting process that must consider various topics: A) Developing an internal sustainability data-gathering mechanism B) Assessing regulatory requirements and ESG frameworks C) Drafting the disclosures by the group of financial disclosure, sustainability, and investor relations personnel D) A sign-off from the top management and E) Stakeholder engagement after and before publishing the ESG report.
We’re happy to help you wherever you are in your ESG reporting requirements. Our staff has knowledge and expertise to help you start and implement your program successfully. Reach out to us at info@semansys.com.