Support and suggestions for digital climate reporting at the SEC

Posted on July 1, 2022 by Editor

The US Securities and Exchange Commission (SEC) has now closed the comment period on its proposal on enhancing climate-related disclosures, which promises to introduce digital reporting requirements for all US public companies. As we write in our response letter, the proposal is “timely and sought by the investment community. It comes at a time when comparable, high quality, audited, and digital disclosures in this field are essential for investors, regulators and policy makers, together with a wide range of other stakeholders.”

XBRL International, of course, strongly supports the use of Inline XBRL, emphasising that the relatively rapid shift to mandatory, audited climate disclosures must also be digital. In our view, the benefit to users in providing direct, digital climate data far outweighs the cost. Indeed, US issuers are both accustomed to and adept at preparing Inline XBRL disclosures, such that “the marginal cost associated with this tagging is likely to be immaterial against the broader costs for issuers associated with the rigorous sourcing, management and control over these disclosures. Failing to ensure that this information is in digital form would greatly reduce the utility of these proposals overall.” It is particularly important to ensure that climate data can be combined in analyses with financial data, currently provided in Inline XBRL.

It is also critical to consider the global context. As such, “our comments are fundamentally concerned with maximising the utility of these digital disclosures at a time when Europe, the UK, Japan, China and numerous other jurisdictions seek to introduce mandatory climate and other sustainability disclosures.” These jurisdictions will utilise tightly connected disclosure standards being developed by the International Sustainability Standards Board (ISSB) and by the European Financial Reporting Advisory Group (EFRAG), with most indicating that they will also use Inline XBRL.

For XBRL International, data consistency and comparability is our paramount concern. US issuer climate performance needs to be accessible to global markets – and vice versa. With ongoing collaboration to foster comparability between ISSB, EFRAG and SEC standards, it is essential to ensure that this extends to the digital level. To this end, we offer a tentative proposal for maintaining digital comparability, whereby identical XBRL tags could be used while each reporting standard retains its own local language labels and legal references.

Another issue we discuss, as does XBRL US – whose response is also worth a read – is that of whether custom extensions should be allowed where companies wish to tag additional facts. We believe that climate reporting standards will need to be relatively dynamic, evolving with fast-changing practices and expectations. As such, custom tags offer a valuable resource in understanding what updates might be needed. “This critical feedback loop to the Commission and to the standards body managing the ESG standard will provide continuous improvement to the standard and in the quality of data over time. Custom extensions are machine-readable and can be more easily reviewed and incorporated back into the reporting requirements”, says XBRL US.

With ISSB and EFRAG consultations also soon to close, a tremendous opportunity lies ahead for standards setters to ensure the utility and comparability of climate and sustainability information around the globe.

Read more here and here.

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