XBRL: the new answer to questionnaire fatigue?June 2008
A new system for managing financial information should make it easier for readers of sustainability reports to extract the data they want. EP looks at how it will work
What is XBRL?
XBRL – eXtensible Business Reporting Language – is royalty-free software that digitally tags individual items of data so that they can be easily transferred between computers and sorted.
Is this a new thing?
Fairly new. XBRL is starting to take hold in financial reporting and is used by analysts and regulators to extract data. Both the Tokyo Stock Exchange and the Dutch tax authorities are using XBRL to file regulatory information.
Why is it being considered for sustainability reporting?
The Global Reporting Initiative (GRI), which has been working on the use of XBRL to manage corporate non-financial data since 2006, says that many report users, in particular investors, have difficulty extracting the information they need, especially when comparing company performance. The GRI hopes XBRL will make it possible to extract information from web pages, PDF files, and other standard file formats, at the touch of a button.
How does it work?
GRI technical director Sean Gilbert says, ‘think coloured pencils’. There are 47 different GRI reporting indicators. A company can use XBRL to go through a report attaching a piece of coding to each indicator where it occurs, effectively highlighting it with a different coloured pencil. Users can then extract the information they require, such as the amount of greenhouse gas emissions per product, based on this categorization. The system of labelling used by XBRL is known as a taxonomy. The hope is that, in the future, companies will write up their reports with XBRL in mind, allowing easy tagging of data.
Surely the context of the data is important?
XBRL can tag both the data and an accompanying explanation. In theory every element of a report can be tagged, but to make the information readily comparable users will need to agree an overall framework, which is one reason why GRI is involved.
Who is expected to use XBRL?
Socially responsible investment researchers and analysts, rating agencies and index providers are the most likely to benefit. However, Gilbert points out that ‘anybody’ can take advantage of XBRL because it doesn’t require particularly sophisticated software and can be used on a desktop computer.
And the cost?
At the most basic level, which will suit most companies, all that is required is a few hundred pounds for the software.
What are the benefits for companies?
Gilbert says XBRL could simplify data collation for sustainability reports, cutting costs in the process. It may also alleviate the problem of ‘questionnaire fatigue’. If it is easier to extract data and compare company performance using the system, in theory there should be fewer surveys.
And the downside?
Some companies may feel that XBRL limits their freedom to express themselves, since XBRL requires a consistency in reporting. However, Gilbert argues that too much individuality in reporting detracts from the ability to use information. Companies will need to strike a balance between individuality and transparency.
Will XBRL really work for sustainability reporting?
Its supporters are confident that XBRL is flexible enough to handle non-financial data. But because this sort of information is more variable than the financial kind – often being qualitative rather than quantitative – piloting will be needed. Gilbert says that companies are likely to find it makes them review their approach to reporting. XBRL will encourage companies to stop thinking about what they want to say and start focusing on the information that people are looking for. In this sense, it would bring much-needed discipline to non-financial reporting and put power in the hands of the users of reports rather than the compilers. What’s more, XBRL should make it easier to integrate financial and non-financial reports. Legislation may maintain a distinction between the two forms of reporting and different levels of assurance are likely to apply, but XBRL users can compare whatever elements of data they like.
Is anybody using XBRL in this field at present?
No, but GRI is looking for companies willing to try it out and share their experiences. At least two businesses have expressed an interest, and several rating agencies, including Ethical Investment Research Services and Sustainability Asset Management, are supportive. In partnership with PricewaterhouseCoopers, which has worked on XBRL with the financial community, GRI has issued a taxonomy based on its sustainability reporting guidelines. So everything is in place to begin the experiment.
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