On August 30, 2024, the European Financial Reporting Advisory Group (EFRAG) unveiled the much-anticipated European Sustainability Reporting Standards (ESRS) Set 1 taxonomy. This release marks a pivotal milestone in advancing the European Union’s Corporate Sustainability Reporting Directive (CSRD). The ESRS Set 1 taxonomy is set to revolutionize sustainability reporting by enhancing transparency, consistency, and comparability across companies operating within the EU.
For each taxonomy, EFRAG has included a supplementary document called ‘Explanatory Note and Basis for Conclusions‘ with the XBRL taxonomy packages. The purpose of this paper is to help with the implementation of the ESRS Set 1 Taxonomy by explaining the process behind them, outlining the technical options that were examined while they were being developed, and providing examples of machine-readable reporting formats.
Key Features of the ESRS Set 1 Taxonomy
- Comprehensive Framework: The ESRS Set 1 taxonomy provides a structured and detailed framework for companies to report on various sustainability issues, including environmental, social, and governance (ESG) factors. This taxonomy aligns with the EU’s broader sustainability objectives and ensures that companies report on aspects that are materially significant to their operations and stakeholders.
- Emphasis on Digital Reporting: A standout feature of Set 1 is its focus on digitalization, utilizing machine-readable formats such as XBRL (eXtensible Business Reporting Language). This digital approach significantly enhances the accessibility, usability, and comparability of sustainability data across various organizations and sectors, setting a new standard for digital reporting.
- Alignment with Global Standards: The ESRS Set 1 taxonomy is meticulously designed to complement and integrate with other global sustainability reporting frameworks, including the Global Reporting Initiative (GRI) and the International Financial Reporting Standards (IFRS). This alignment helps ensure that European sustainability disclosures remain consistent with international best practices, thereby facilitating broader comparability on a global scale.
- Sector-Specific Guidelines: Recognizing the unique sustainability challenges faced by different industries, the taxonomy includes sector-specific reporting requirements. This tailored approach ensures that the information disclosed is relevant and actionable for stakeholders, providing deeper insights into the sustainability performance of companies within specific sectors.
- Stakeholder Engagement: The development of the taxonomy was a collaborative process involving extensive consultations with a wide range of stakeholders, including businesses, investors, and civil society organizations. This inclusive approach ensures that the taxonomy reflects diverse perspectives and addresses the varied needs of its users.
Implications for Companies
The introduction of the ESRS Set 1 taxonomy represents a significant shift in how companies within the EU report their sustainability performance. Organizations will need to familiarize themselves with these new requirements and integrate them into their reporting processes. This may involve revising current reporting structures, adopting advanced data management practices, and enhancing overall transparency.
Compliance with the new taxonomy may also necessitate investment in training and systems upgrades to meet the standards. Despite the upfront costs, the long-term benefits include improved stakeholder trust, greater data comparability, and enhanced alignment with global sustainability trends.
IRIS Carbon’s Readiness for EFRAG ESRS Compliance
As the EFRAG ESRS Set 1 taxonomy sets new standards for sustainability reporting, companies are turning to advanced solutions to ensure compliance. IRIS Carbon, a leading provider of sustainability reporting software, is well-positioned to support organizations in navigating these new requirements.
- Adaptation to New Standards: IRIS CARBON® has proactively updated its platform to incorporate the ESRS Set 1 taxonomy, enabling users to seamlessly align their reporting processes with the latest standards. This ensures minimal disruptions and streamlines compliance efforts for businesses.
- Advanced Data Integration: The IRIS CARBON® platform offers robust data integration capabilities, allowing users to consolidate and manage ESG data from diverse sources. This feature is crucial for meeting the comprehensive reporting requirements of the ESRS Set 1 taxonomy and maintaining the accuracy of disclosed information.
- User-Friendly Interface: With an intuitive interface and user-friendly tools, IRIS CARBON® simplifies the reporting process. The platform’s templates help companies efficiently generate reports that adhere to the new taxonomy, thereby reducing the complexity of compliance and enhancing reporting efficiency.
- Real-Time Updates and Support: IRIS CARBON® is committed to providing real-time updates and expert support. As sustainability regulations and standards continue to evolve, the platform ensures that users have access to the latest features and guidance to maintain compliance with ESRS requirements.
Looking Ahead
As the EU continues to spearhead advancements in sustainability reporting, the ESRS Set 1 taxonomy is poised to evolve. Future updates will build on the initial framework, incorporating feedback from the early stages of implementation and addressing emerging sustainability issues. Companies are encouraged to stay informed about these developments and prepare to integrate these evolving standards into their reporting processes.
The release of the ESRS Set 1 taxonomy is a critical step toward more transparent and consistent sustainability reporting in Europe. It underscores the EU’s commitment to advancing sustainability practices and provides a robust foundation for companies to effectively demonstrate their environmental and social impact. Organizations must stay proactive, ensuring they are ready to adapt and leverage the benefits of enhanced sustainability disclosures.
Stay tuned for further blogs and webinars that will delve deeper into the intricacies of the ESRS Set 1 taxonomy and offer practical guidance on implementation.
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As the distinguished specialist at IRIS CARBON®, Neha leads the way in advancing XBRL reporting. With 13 years of domain expertise, she navigates reporting mandates across the US, UK, EU, Israel, and Nigeria. Neha streamlines XBRL integration for European businesses, raising reporting standards. Her expertise extends to the digital transformation of ESG data and authoring reports using the Disclosure Management platform. Neha’s blogs offer practical insights for mastering XBRL reporting and financial disclosure, recognized for turning complex concepts into strategic assets. She guides industry leaders, ensuring each initiative is a roadmap for successful ESG integration and impactful financial reporting.
