EFRAG Publishes the ESRS Set 1 XBRL Taxonomy: A New Era for Digital Sustainability Reporting

In a significant advancement for digital sustainability reporting, the European Financial Reporting Advisory Group (EFRAG) has recently published the ESRS Set 1 XBRL Taxonomy. This pivotal development, officially adopted by the European Commission (EC) on July 31, 2023, and published in the Official Journal of the European Union on December 22, 2023, marks a transformative step in how companies will report their sustainability metrics in the European Union.

Here’s an in-depth look at what this means for the future of financial and sustainability reporting.

The ESRS Set 1 XBRL Taxonomy is a comprehensive digital framework designed to facilitate the tagging and structuring of sustainability disclosures in a machine-readable format. This taxonomy encompasses a broad range of sustainability reporting standards, including:

• ESRS 1: General Requirements 

• ESRS 2: General Disclosures

• ESRS E1 to E5: Environmental Standards covering Climate Change, Pollution, Water and Marine Resources, Biodiversity and Ecosystems, and Resource Use and Circular Economy

• ESRS S1 to S4: Social Standards focusing on Workforce, Workers in the Value Chain, Affected Communities, and Consumers

• ESRS G1: Governance Standard

This taxonomy aims to digitalize and standardize the way sustainability reports are prepared, allowing for consistent and transparent reporting across the EU.

1. Digital Transposition: EFRAG has ensured that the XBRL taxonomy represents a correct digital transposition of the human-readable ESRS Set 1 standards. This means that the taxonomy aligns closely with the ESRS requirements, providing a robust framework for digital sustainability reporting.
2. Enhanced Usability: For preparers and software vendors, the XBRL taxonomy offers a structured approach to organizing ESRS sustainability statements. It supports the tagging of disclosures, enabling the conversion of human-readable reports into a machine-readable format. This enhances the efficiency and accuracy of data extraction and analysis.
3. Support for Users: Analysts and data providers benefit from the XBRL taxonomy as it allows for more accessible and analyzable sustainability data. The taxonomy facilitates the creation of taxonomy-based table views and the use of narrative and semi-narrative elements for in-depth analysis.
4. Flexibility in Reporting: The taxonomy includes both explicit and typed dimensions, enabling disaggregation of digital disclosures. This flexibility supports various reporting needs and enhances the granularity of the reported data.
5. Integration with EU Legislation: The taxonomy is developed in compliance with the EU’s legal framework, particularly the Accounting Directive and the Corporate Sustainability Reporting Directive (CSRD). It also aligns with the European Single Electronic Format (ESEF) used for financial reporting.

1. For Preparers and Software Vendors: The XBRL taxonomy facilitates the structuring of ESRS sustainability statements by providing a standardized data model. This aids in tagging human-readable sustainability reports, enabling their conversion into a machine-readable format. This digital approach simplifies data reporting, reduces manual processing, and enhances accuracy and efficiency. Preparers can leverage the taxonomy to ensure compliance with ESRS requirements and streamline the reporting process.
2. For Users: Analysts, data providers, and other stakeholders benefit from the XBRL taxonomy by gaining access to structured, machine-readable data. This facilitates better data extraction, analysis, and comparison. Users can create taxonomy-based table views, utilize narrative and semi-narrative elements for detailed analysis, and benefit from the taxonomy’s short descriptions and references.
3. For Regulators: The XBRL taxonomy aligns with the EU’s legal framework, specifically the amended Accounting Directive and the CSRD. It supports the European Securities and Market Authority’s (ESMA) development of Regulatory Technical Standards for tagging sustainability statements. By adopting the XBRL format, the EU ensures compatibility with global standards and fosters digital interoperability.

The ESRS Set 1 XBRL Taxonomy includes a range of technical features designed to enhance usability and accuracy:

1. XBRL Elements: The taxonomy consists of XBRL elements (tags) used to represent both quantitative and qualitative data. These elements include dimensions for disaggregating disclosures, such as geographical areas, policy identifiers, and GHG categories.
2. Validation Rules: A set of validation rules (assertions) ensures the quality and integrity of the XBRL reports. EFRAG has noted that additional validation rules may be introduced as digital reports become available to maintain high data quality.
3. Dimensions and Attributes: The taxonomy uses explicit dimensions (e.g., country, gender) and typed dimensions (e.g., geographical area) to provide flexibility in reporting. Each XBRL element includes attributes like period type and data type, with references to the ESRS and other relevant standards.
4. Presentation and Technical Definitions: XBRL elements are organized into Disclosure Requirements in a tree structure, facilitating navigation and understanding of the taxonomy. The technical definition linkbase specifies how elements should be combined with dimensions and grouped into tables (hypercubes).
5. User Guidance: EFRAG provides visualizations and explanatory notes to aid users in understanding and implementing the taxonomy. These resources are essential for ensuring accurate tagging and effective use of the taxonomy in reporting.

EFRAG’s role in developing the ESRS Set 1 XBRL Taxonomy was crucial, given its mandate from the EC. The taxonomy will serve as the basis for the European Securities and Market Authority (ESMA) to draft Regulatory Technical Standards for tagging the ESRS sustainability statements. Although EFRAG did not conduct a field test due to time and resource constraints, it performed focused outreach to gauge the feasibility and benefits of the proposed features.

A survey among XBRL tagging service providers estimated the costs of tagging financial statements and notes to be between 15-20 EUR per XBRL element, providing an insight into the economic implications of this digital transition.

The ESRS Set 1 XBRL Taxonomy is not only a milestone in digital reporting but also a foundational tool for true digital sustainability reporting. Once adopted by ESMA and the EC, it will enhance digital interoperability and enable more efficient and transparent sustainability reporting.

Patrick de Cambourg, Chair of the EFRAG Sustainability Reporting Board (SRB), emphasized the significance of the taxonomy in improving the usability of ESRS statements. Chiara Del Prete, Chair of the EFRAG Sustainability Reporting Technical Expert Group (SR TEG), highlighted the innovative nature of this taxonomy and its role in achieving digital interoperability.

The publication of the ESRS Set 1 XBRL Taxonomy marks a transformative moment in sustainability reporting, setting a new standard for how companies in the EU will disclose their sustainability metrics. This development underscores the importance of digitalization in enhancing transparency, efficiency, and comparability in sustainability reporting. As companies begin to adopt this taxonomy, it will pave the way for more robust and accessible sustainability disclosures, ultimately contributing to a more sustainable and transparent financial ecosystem.

For more information and access to the XBRL taxonomy packages, visit the EFRAG Press Release and explore the ESRS Set 1 XBRL Taxonomy.