What is the CSRD and ESEF?
The CSRD mandates that companies report on sustainability (ESG) factors, with the ESEF serving as the standardized digital format for these disclosures. Sustainability reports must be prepared in XHTML and include iXBRL tagging to ensure they are both human-readable and machine-readable.
So, CSRD and ESEF interface because the CSRD sets the reporting requirements while the ESEF provides the digital framework to ensure these reports are accessible, standardized, and comparable.
More information about ESEF
The European Single Electronic Format (ESEF) is a standard reporting format required by the EU for financial reports of companies listed on EU-regulated markets. Since January 1, 2021, ESEF ensures financial statements are easier to access, analyze, and compare across Europe.
Reports must be prepared in XHTML, a format that is readable in web browsers. If the report includes IFRS financial statements, companies must use Inline XBRL (iXBRL) tags. These tags are embedded in the XHTML file, making the data both human-readable and machine-readable.
More information about CSRD
The Corporate Sustainability Reporting Directive (CSRD) is an EU regulation that requires companies to report detailed information on environmental, social and governance (ESG) factors. It aims to improve the transparency, reliability, and comparability of sustainability data across the EU.
Reports need to follow the European Sustainability Reporting Standards (ESRS), which is a standardized framework. This ensures consistent and clear communication of ESG data. The CSRD helps stakeholders better assess companies’ sustainability performance and risks.
Reporting guidance for CSRD and ESEF
1. Understand ESRS and reporting requirements
To comply with the CSRD, you need to understand the ESRS. These standards define the structure and content of sustainability reports. ESRS are divided into general standards and thematic standards, with ESRS 2 serving as the general standard.
The CSRD ESRS 2 applies to all companies and focuses on universal requirements for sustainability disclosures. Other ESRS, such as ESRS E1 and ESRS S1, focus on more thematic standards, which are determined by the outcome of the double materiality assessment.
The ESRS framework uses a mix of data types for reporting, for example:
- Narrative data: Descriptive information about policies, strategies, or governance.
- Numeric data: Quantitative metrics, such as emissions or diversity ratios.
- Monetary data: Financial figures, such as sustainability-related investments.
By understanding these elements, you can structure your report correctly and meet all ESRS requirements. Ensure you also familiarize yourself with sector-specific ESRS standards that might apply to your company.
2. Start collecting ESRS data
Gathering data is the foundation of a compliant sustainability report. Start by identifying all the data points required under the CSRD. This includes information on governance, environmental impacts, social factors, and business strategies. Engage stakeholders across departments to ensure you collect comprehensive and accurate data.
Ensure you align collected data with the requirements outlined by the ESRS. This will make the eventual tagging process smoother and ensure compliance. Use a structured approach and digital tools to streamline the data collection process and reduce errors.
3. Apply inline XBRL (iXBRL) tagging
The next crucial step in creating a compliant report for CSRD is XBRL tagging. Inline XBRL (iXBRL) embeds machine-readable tags into your XHTML file, making the data both accessible and comparable. The ESRS XBRL Taxonomy provides the specific tags you need to use for each data point.
For example:
- A description of your diversity policy would use a narrative tag.
- A greenhouse gas emissions figure would use a numeric tag.
- A yes/no answer about the existence of a whistleblower policy would use a boolean tag.
Ensure every data point is tagged correctly to align with ESRS requirements. This will enable stakeholders and regulators to analyze your data efficiently.
4. Prepare the report in XHTML format
After gathering your data and tagged the data, format your sustainability report in XHTML. This ensures your report is compatible with web browsers and meets ESEF requirements. XHTML combines the readability of a traditional report with the functionality of a digital document.
Formatting in XHTML is a critical step to ensure compliance with the ESEF guidelines. Use tools or platforms that support XHTML conversion to maintain accuracy and efficiency. Ensure that tables, narratives, and numeric data are presented clearly in the digital format.
5. Implement quality assurance and submit
Before submitting your report, perform thorough quality checks. Review the XHTML formatting, iXBRL tagging, and accuracy of the data. Set up internal controls or engage third-party auditors to validate your report.
After validation, integrate the sustainability report into your annual management report. Submit the finalized report to your national authority as required.
Tips for reporting on CSRD with ESEF
1. Leverage specialized software
Use software solutions designed for CSRD and ESEF reporting. These tools can help you format reports in XHTML, apply iXBRL tagging, and align with the ESRS taxonomy. Many platforms also offer features to streamline data collection and validation, reducing the risk of errors and saving time.
Look for software that is regularly updated to meet evolving regulatory requirements. Additionally, these tools often include automated quality checks, ensuring that your report meets technical and regulatory standards. Investing in the right software reduces complexity and increases reporting accuracy.
2. Engage specialists for expert guidance
Collaborate with sustainability and reporting specialists to ensure compliance with CSRD and ESEF standards. ESG consultants can help with materiality assessments and data collection, while XBRL experts can assist with accurate tagging and digital formatting.
Specialists provide valuable insights and expertise, ensuring your reports are both compliant and high-quality. Their guidance can also help you identify gaps in your current processes and improve your overall reporting strategy. Working with experts not only enhances compliance but also builds credibility with stakeholders.
3. Plan early and organize thoroughly
Start the reporting process early to give yourself enough time for data collection, validation, and formatting. Use a structured approach to organize your ESG data, involving all relevant departments such as HR, finance, and compliance.
This proactive planning minimizes last-minute issues and ensures a smooth reporting process. Set clear timelines and assign responsibilities to each team to keep the process on track. Regular progress reviews and updates can help identify and address potential bottlenecks early.
