Digital transformation: The potential value of XBRL for sustainability reporting

Abstract

The growing awareness and importance of sustainability issues have increased the need for sustainability information, and especially large companies have answered the demand by producing sustainability reports. In addition to non-mandatory guidelines published by the EU, there are various private standards and frameworks to help companies report on sustainability information. The lack of precise requirements makes it challenging for companies to determine what to include in the sustainability report, which leads to variation in reporting practices, format, and content across companies. These challenges decrease the comparability of the reports, and the information may be difficult to find for report users as sustainability reports become more comprehensive. This study investigates the potential value of a computer software language, XBRL (eXtensible Business Reporting Language), for sustainability reporting. XBRL can improve comparability, and so far XBRL has been mainly used to standardize financial reporting and to make it machine-readable. The EU has required to digitally tag financial information, and the new CSRD legislation would require companies to digitally tag sustainability information as well.

To investigate the potential value of XBRL for sustainability reporting, semi-structured interviews were conducted on both financial reporting and sustainability reporting to interviewees from Finnish listed companies. The interviews aimed to identify what kind of current practices and challenges there are regarding both XBRL and sustainability reporting. The study relies on thematic analysis, and the findings were categorized by three main themes applying the technology-organization-environment (TOE) framework created by Tornatzky and Fleischer (1990). The findings indicate that XBRL was relatively effortless to implement and maintain, its benefits are expected to be realized in the long term (e.g. standardized and structured reports), and that XBRL has the potential to make also sustainability reporting more comparable. XBRL was assumed to benefit mainly companies’ stakeholders, and the interviewees had not yet recognized any direct value of XBRL for the companies.

The findings suggest that for sustainability reporting a well-defined and limited amount of information that is often presented in reports of various companies across different industries could be tagged to increase the comparability of reports while avoiding custom XBRL tags. More efficient sustainability reporting processes and digitalization were required, and XBRL could be one tool to improve the usability of sustainability information. One of the most significant factors, but also challenges affecting the potential value of XBRL was seen to be how clear and accurate standards and XBRL taxonomies the regulators can create for the diverse field of sustainability reporting.