All your questions on the EFRAG taxonomy, answered
Posted on June 9, 2023 by Editor
Guest blog by Jacques Urlus, Chairman of the XBRL Netherlands Foundation.
EFRAG has announced that the first final version of its taxonomy for ESG information will be released at the end of September. That leaves 14 months for the first listed companies to release their formatted annual reports containing the tagged ESG information.
Although nothing is certain yet, we are discovering the first outlines of the new taxonomy in minutes and presentations. What should companies, software vendors, consultants and auditors prepare for?
- The ‘Sustainability Reporting XBRL Taxonomy’ will consist of two parts. The first part involves the digitisation of the 12 ESRSs and the second part the requirements set out in Article 8 of the Taxonomy Regulation. The part that focuses on the ESRSs is called the ‘ESRS XBRL Taxonomy’.
- ESMA will integrate the ESRS XBRL Taxonomy into its taxonomy for ESEF reports.
- Central to this is the ‘Disclosure Requirement’ as included in the ESRSs. Each DR is translated into individual datapoints in the ESRS XBRL Taxonomy.
- The structure of the ESRSs forms the basis for modelling the ESRS XBRL Taxonomy. This allows ESG information to be included in the governance report ‘Taxonomy Centric’.
- ESG information will have to be nested just like the disclosures in the financial statements. Proper inclusion of a DR in the board report has thus become extremely important.
- Each DR is modelled according to a fixed structure and has up to 3 levels of nesting.
- If necessary, a DR should be broken down into separate datapoints. An example is ‘Risks and Opportunities’ (ESRS 2 paragraph 51). If the information on ‘Risks’ and ‘Opportunities’ is recorded separately, then each item should be tagged separately. If the information is aggregated then ‘Risks’ and ‘Opportunities’ should be tagged together with one tag.
- As the ESRS XBRL Taxonomy is an integral reflection of the ESRSs, extensions are hardly expected, if at all. In this context, ESG information can be considered more rule-based, than financial information.
- To avoid extensions, ‘typed dimensions’ will be used. ESMA’s reporting manual, which states that ‘typed dimensions’ should not be used, will be updated on that point.
- Another way to avoid extensions is EFRAG’s proposal to provide Level 2 and Level 3 with an ‘Other concept’. These concepts can then include company-specific information that is not covered by the ESRS XBRL Taxonomy.
- To ensure the completeness of DRs in ESRS 1 paragraph 32, EFRAG is considering having any non-relevant DRs for the company filled with a nil value. Again, ESMA will need to amend the reporting manual for this. After all, non-relevant DRs will not be legibly included in the management report.
- Care should be taken when tagging DRs described in ESRSs with terms such as ‘shall consider’ and ‘including’. The context of the DR determines how.
- For DRs with ‘whether and how’, the ‘whether’ is defined with a boolean. For ESMA, this will be a new data type. If the ‘whether’ is given the value ‘true’, the ‘how’ should also be included.
- There may be two solutions for the always mandatory ‘EU datapoints’. The first solution involves tagging the information as an ‘EU datapoint’, a specific type that can be checked with XBRL Formula. The second solution is the previously mentioned solution of ‘whether’. The presence of specific policies can then be indicated with ‘true’.
- Drafters may use the XBRL specification Extensible Enumerations 2.0 to further expand lists of data.
- A solution to define the presentation order of data (when using dimensions) is not yet available. The Dutch solution of ‘PresentationOrder’ has been proposed.
- Country and currency overviews will possibly use XBRL International’s Currency and Country Taxonomies. These taxonomies were recently consulted.
- The limited set of data types used by ESMA will be considerably expanded. Consider specific data types for energy and CO2 emissions, for example.
- EFRAG will not publish a reporting manual with guidelines, as we are used to with ESMA.
- EFRAG is going to publish a guide for preparers, though, along with a sample report.
The above information was gathered from minutes and presentations by EFRAG and ESMA. As mentioned earlier, nothing is definite yet. A consultation version will first be published in June. In addition, the ESRSs have yet to be finalised by the European Commission. As soon as things become final, you will of course hear from us.