Taxonomy-centric approach to ESG ESRS reporting: How to comply with ESRS standards

Benefits of the Taxonomy-centric approach to ESG reporting

Comparability and transparency of the reported information

The taxonomy-centric methodology ensures that the ESG data are presented according to and adhering to the standardised set of definitions of the ESRS. This will ensure that information is accurate, consistent, and easily comparable across organisations, boosting transparency.

By utilising the taxonomy-centric approach, issuers can significantly:

• enhance the comparability and transparency of their ESG disclosures.
• reflect their sustainability initiatives in a universally understandable format.

Boosts your credibility and reputation

Stakeholders and regulatory bodies recognise and value the commitment to standardised reporting practices. Over time, consistent application of the taxonomy on a granular level will strengthen your standing as a transparent and reliable entity. This will not only enhance trust in your disclosed non-financial information but also position your organisation as a leader in corporate responsibility and sustainability.

ESG ESRS reporting trial run gets you ahead of the game

This preparation is crucial to understanding the complexities of the ESG ESRS reporting and succeeding with it. It is also an opportunity to identify and resolve any gaps or inaccuracies in your data collection and reporting processes.

Performing a dry run now will ensure that when the official ESG iXBRL tagging begins, your data will be accurate and compliant with the ESRS standards, minimising the risk of regulatory penalties. This will not only enhance your credibility with stakeholders but also help you establish your new reporting processes and ensure a smooth transition to the new reporting requirements.

Challenges of ESG ESRS reporting

Many and different data points

EGS reporting under the ESRS standards utilises a wide array of data points. This introduces a degree of complexity in the structure of ESG data. This complexity originates from the need to accurately represent the diverse range of factors, e.g., impacts from carbon emissions and resource usage; social elements, including labour practices and engagement; and aspects like corporate ethics and compliance. 

Managing those complex data structures will not only require a system that can process and accommodate multiple data types but also one that can ensure consistency and comparability across reporting periods.

Implementing taxonomy-centric reporting from the get-go will address those challenges by providing a structured and methodological approach to ESG data management. By organising the data according to the predefined ESRS taxonomy, issuers can streamline their data processing workflows and reduce errors and inconsistencies.

Data availability and interpretation complexities

Another challenge of ESG reporting is the availability of data combined with its interpretation. This complexity originates from the wide range of data formats and sources that must be consolidated and interpreted according to the ESG standards.

Check out our ESRS taxonomy overview for a complete breakdown of all 12 ESRS reporting standards and all data types associated with each data point.

Gathering comprehensive data across the environmental, social, and governance dimensions often involves the collaboration of various teams within the organisation as well as input from external entities such as partners and suppliers. This poses a risk that the data may not be readily available or that there may be gaps in the data collection.

Interpreting this comprehensive ESG data adds another layer of complexity. Each aspect of ESG reporting requires specific knowledge to ensure accurate representation and analysis.

Adopting a taxonomy-centric approach can help issuers overcome these challenges by providing a structured framework for organising and interpreting ESG data. 

The auditors’ puzzle

Without a taxonomy-centric approach, auditing ESG reports would be like solving a puzzle without a picture on the box. Without standardised data structures, auditors will have a hard time verifying ESG compliance and report accuracy. Here are a few of the aspects associated with this challenge: 

• Data standardisation: The standardised structured presentation of information is crucial for auditors to effectively analyse and compare the reported data against regulatory requirements.
• Consistent definitions: Consistent and clear definitions of ESG data points are necessary for auditors to ensure accurate validation. 
• Streamlined auditing process:  Taxonomy-centric reporting reduces the time required for auditors to cross-reference reported data against regulatory guidelines. It also ensures that auditors can easily access and understand all ESG metrics, which leads to a thorough and accurate overall audit process.

Adopting a taxonomy-centric reporting framework will streamline the audit process, ensure alignment with the ESRS standards, and ultimately enhance the issuers’ credibility in corporate ESG responsibility.