In 2025, we anticipate the release of the first digital sustainability reports using the IFRS SDT (ISSB) taxonomy. As part of our efforts in developing tools for XBRL reporting, we are currently undertaking test projects to align our system with the IFRS SDT taxonomy. These projects aim to gain experience in preparing digital sustainability reports under IFRS S1 and S2.

Recently, we conducted a test project based on a report that fully complied with the Global Reporting Initiative (GRI). However, it was not yet adjusted to IFRS S1 and S2. The 2022 sustainability report, which we assisted one of our clients in preparing, serves as the basis for the insights we are sharing here.

Given that this will be the first year of implementation, the process of preparing the report might be time-consuming. All markup will need to be done from scratch, and users will encounter new types of taxonomy elements with different rules for markup. It’s crucial to note that, according to IFRS S1, the sustainability report must be part of the management report in the entity’s annual report. This means companies will typically have only four months to prepare and validate all sections of the annual report, including financial and sustainability reports.

Several challenges were identified during our experiment:

Complex nesting of the taxonomy: The taxonomy has a highly granulated nesting structure, separating disclosure requirements. However, this complexity makes building the taxonomy structure for XBRL markup more complicated. Users must add a significant number of taxonomy elements for the structure alone; this makes the report and preparation process more complex.

Insufficient core taxonomy hypercube Items: The amount of core taxonomy hypercube items is not sufficient to cover all users’ needs. Although there is a section with templates for hypercube construction, it lacks detailed elements for member terms. This prompts users to create more extended taxonomy elements, potentially impacting the quality of digital reporting.

Differences from ESEF and UK SEF: The taxonomy differs significantly from ESEF and UK SEF, inasmuch as it introduces new data types for taxonomy elements. The markup process for these elements may differ, leading to potential confusion among users and increasing the likelihood of errors in the report.

Considering that annual reports are expected to include two taxonomies, one for financial, and another for sustainability reporting, the validation process will become more complicated.

In conclusion, while the preparation of digital sustainability reports is manageable, there are challenges that both software providers and preparers need to anticipate.

Software vendors should consider the evolving features of new taxonomies and strive to simplify the preparation process.

Preparers should be proactive in adapting to the new process by producing pilot reports with interim data aligned with the new standards.

The implementation of the SDT taxonomy