The Rise of Digital Reporting in Corporate Disclosure

In a previous discussion, we touched on the sweeping reforms reshaping the landscape of corporate reporting, led by a surge in sustainability disclosure mandates (see our blog post ‘New Era: Shifting to Sustainability and Digital Reporting’). Today, we delve deeper into one of the pivotal elements of this transformation: digital (electronic) reporting.

As local digital (electronic) reporting mandates are likely to emerge, this fundamental shift has broad implications globally. The European Single Electronic Format (ESEF) is already mandatory in the EU and affects non-EU entities with listed securities in EU markets. Furthermore, the upcoming implementation of the Corporate Sustainability Reporting Directive (CSRD) will introduce additional electronic reporting requirements, significantly impacting both EU and non-EU entities.

This article aims to demystify digital reporting—explaining what it is, its objectives, and the inherent challenges it presents.

What is it?

Digital reporting transforms traditional annual reports into electronic formats that are not only human-readable but also machine-readable. These reports are typically in HTML, the same format used for web pages, allowing them to be accessed through a browser.

Embedded within the HTML are XBRL tags—hidden layers of data not immediately visible to the reader but accessible to software designed to parse numeric and narrative information. For tagging this information, a standardized taxonomy is used, which defines and categorizes each element to ensure consistency and clarity across reports. This "hidden" data can be revealed through the browser's 'View source' option (for those interested in seeing how narrative disclosures and numeric data are meticulously tagged).

In the European context, the European Single Electronic Format (ESEF) mandates that, as of the 2020/2021 financial year, all publicly listed companies, both EU and non-EU, must submit their annual reports in this format. This includes detailed tagging of financial statements and block tagging of the accompanying notes.

Looking ahead, by 2025/2026, all disclosures mandated by the CSRD and standardized by the European Sustainability Reporting Standards (ESRS) will also require tagging. From 2028, this requirement will extend to non-listed companies outside the EU with significant business in the EU and a legal entity in the EU as well.

As global regulations evolve to encompass more comprehensive sustainability reporting, the likelihood of electronic reporting mandates becoming standardized outside the EU is increasing. To facilitate this transition, a taxonomy for the ISSB Standards is already in place, providing the necessary framework to enable consistent and transparent reporting of sustainability information worldwide.

What is the goal?

The primary objective of transitioning to a standardized, electronic reporting format is to enhance transparency. This format allows stakeholders, including investors, analysts, and the broader public, to compare company performances easily and accurately. The driving force behind this shift is not only financial transparency but also the detailed disclosure of a company's sustainability practices, touching on climate impact, social responsibility, and governance. The ultimate aim is to facilitate access to corporate disclosures through digital platforms like the European Single Access Point (ESAP), set to launch in 2027, which will provide a centralized database of financial and non-financial performance metrics.

Why is it so challenging?

The shift to digital reporting poses significant challenges, primarily due to the technical requirements of embedding machine-readable tags within traditionally formatted documents. Tools commonly used for document creation, such as Microsoft Word—which is often embedded in disclosure management solutions—and Adobe InDesign, a desktop publishing (DTP) tool commonly used by design agencies to produce designed annual reports, do not natively support the integration of XBRL tags. This limitation complicates the reporting process, causing companies to grapple with cumbersome, error-prone procedures or resort to additional software that can lead to data duplication and consistency issues.

Moreover, the process of tagging itself—especially the block tagging of narrative disclosures—can be intricate and time-consuming. The need for accuracy and the potential for errors during this tagging process add layers of complexity, driving organizations to adopt integrated solutions that facilitate compliance and enhance data integrity.

Conclusion:

As we navigate the evolving requirements of corporate reporting, it becomes clear that the transition to digital reporting is not merely a regulatory compliance issue but a strategic imperative that impacts companies globally. The adoption of modern reporting tools—equipped with automation, structured content formats, and integrated tagging functionality—has become essential. These tools not only alleviate the burdens associated with digital reporting but also enhance the accuracy and accessibility of corporate information, setting new standards for transparency and stakeholder engagement. This global shift demands that organizations everywhere prepare to meet these new standards, ensuring they remain competitive and compliant in a rapidly changing regulatory landscape.