Simplification needed: our view on EU sustainability proposals
The European Securities and Markets Authority (ESMA) this week closed its consultation on critical updates set to expand the EU’s digital reporting regime.
Under review were the Regulatory Technical Standards (RTS) on the European Single Electronic Format (ESEF) for sustainability reporting, expanding the ESEF framework to sustainability disclosures.The consultation paper also introduced amendments to its existing RTS on the European Electronic Access Point (EEAP), bringing its naming up-to-date as the European Single Access Point (ESAP), and revisions to the markup rules for the Notes to the IFRS consolidated financial statements, introducing mandatory tagging requirements.
XBRL International’s response advocates a stronger digital agenda and a substantial simplification of ESMA’s proposals, minimising unnecessary delays and complexity in implementation. In our view, the EU must ensure the discoverability and accessibility of both financial and sustainability disclosures by EU corporates. A fundamentally analogue approach for the next 5–7 years will impair the competitiveness and attractiveness of EU markets. We therefore urge ESMA to embrace a substantially more ambitious vision for modern disclosure within the European Union.
The costs of digital tagging are a tiny proportion of the overall costs of compiling a report, yet provide huge long-term benefits: enhanced transparency, information flow and investor confidence, and ultimately more efficient capital markets for the benefit of all participants.
Structured data (XBRL disclosures) and metadata (XBRL taxonomies) also provide ideal inputs for AI analysis. They enable vastly more accurate, reliable and decision-useful AI insights, in a manner that facilitates provenance and enhances trust. The mainstreaming of AI makes access to high-quality digital data more important than ever.
In the light of the Omnibus Amendments – expected to provide delayed timelines as well as a substantial reduction in the number of companies filing sustainability disclosures – we suggest that ESMA take the opportunity to align the introduction of digital reporting with the phasing provided by the amended legislation. Taking a “digital twin” approach, where there is a disclosure requirement with an accompanying taxonomy – such as the ESRS taxonomy for sustainability reporting – ESMA should require digital disclosures from outset, permitting a “grace period” of up to 12 months but avoiding complex phase-ins. Digital requirements should come twinned with the relevant disclosure rule rather than via a separate implementation process, providing greater simplicity, clarity and utility for stakeholders.
XBRL International also suggests simplified approaches to taxonomy management, as well as reduced technical detail in the RTS and shorter feedback loops to allow timely updates to both the RTS and filer manual. We strongly support ESMA’s end goal of expanding digital reporting, making sustainability disclosures comparable and useful, and its proposals to incorporate regular review and feedback processes for continuing improvement.
Read our response in full here and here, and catch up on the consultation paper here.
