Everything you need to know about ESEF reporting in 2024

ESEF reporting is a recent requirement put out by European regulators to standardize the way security-issuing companies report on their financials. While this may seem like just another hurdle to jump over, it’s a way to standardize financial reporting while making it more transparent.

In this article, we’ll share everything you need to know, including:

What is ESEF?

ESEF stands for European Single Electronic Format and is a recent requirement that covers how some companies listed on European stock exchanges must prepare and submit their annual financial reports. Specifically, it standardizes the file format and data tagging used across these companies to iXBRL (Inline eXtensible Business Reporting Language). This is a language that is readable by both humans and machines, creating a more transparent and accessible reporting standard.

This standard was established by ESMA, the European Securities and Markets Authority. This regulatory body oversees the security markets and its participants, much like the Securities and Exchange Commission (SEC) in the United States.

Who does ESEF apply to?

ESEF only applies to organizations in the EU or UK that issue securities.

ESEF history

While ESEF reporting only became mandatory in 2020, you can trace its roots as far back as the global financial crisis of 2008:

• 2008-2010: The global financial crisis prompts a reevaluation of financial reporting standards and practices.
• 2011-2013: The European Commission launches the Transparency Directive Review, one of its first attempts at standardizing reporting requirements for companies listed on European stock exchanges across the EU. Through this review, the need for a single reporting format became clear.
• 2014-2016: The European Commission proposes amendments to the Transparency Directive, among them the introduction of ESEF.
• 2017-2018: The European Parliament and the Council of the European Union adopt the amendments to the Transparency Directive, which officially introduces the requirement for ESEF reporting. The European Securities and Markets Authority (ESMA) receives the mandate to develop regulatory technical standards for ESEF implementation.
• 2019: ESMA publishes the regulatory technical standards on ESEF, which specifies that ESEF reporting is mandatory for financial reports beginning on or after January 1st, 2020.
• 2020-present: ESEF reporting is mandatory for security-issuing companies listed on EU-regulated financial markets.

What is ESEF tagging?

ESEF tagging is the actual tagging of data in financial reports using the iXBRL standard. This tagging process creates standardized documents that can be easily read by both humans and machines.

What is iXBRL?

The Inline eXtensible Business Reporting Language (or iXBRL) is an open standard used to prepare financial statements around the world. The language allows for specific data points to be “tagged” in a way that software can pick up and process. This helps save manual work for organizations that need to report on their financial operations and the authorities that review their filings.

How to get started with ESEF for your financial reporting

Now that you know what ESEF is, let’s dive into how you can ensure your organization is compliant with this standard.

Get familiar with the ESEF reporting manual

ESMA released a 54-page ESEF reporting manual that covers everything you need to know about creating financial reports that meet this standard. This includes guidelines on the standards as a whole, guidance for software providers who want to keep their platforms compliant, and more.

Brush up on the ESEF XBRL taxonomy files

The XBRL taxonomy files get into the nitty-gritty of this language. These are often used by software developers building financial reporting platforms that need to be compliant with ESEF, but they can also be a handy reference for the Office of the CFO when preparing annual financial reports.

Know how to use the ESEF Conformance Suite to test your ESEF compliance

Staying compliant with standards like ESEF can be complicated, especially when working across multiple departments. That’s where the ESEF Conformance Suite comes in. This batch of test files presents multiple scenarios with valid and invalid sample reports—great for testing your know-how.

Where to learn more about ESEF

ESMA’s website should be your reference of choice for any ESEF-related questions. They have tons of documentation, support, and guides that’ll help your team become proficient in these requirements in no time.

ESEF, CSRD, and sustainability reporting

What is CSRD?

The Corporate Sustainability Reporting Directive (CSRD) is a European standard enforcing the reporting of ESG (environment, social, and governance) impacts for most organizations issuing securities in the EU.

Who needs to comply with CSRD?

About 50,000 organizations within the EU need to comply with CSRD. If you’re not sure if your business falls within the scope of this directive, consider if it meets the following criteria:

• EU public interest companies with more than 500 employees.
• EU companies with more than 250 employees and/or EUR 50 million in revenues and/or EUR 25 million in assets.
• Small or medium companies in the EU listed on a regulated market.
• Companies not based in the EU with a European branch or subsidiary with net revenues of EUR 150 million for two or more years.

What are the sustainability reporting requirements under CSRD?

Here are the main sustainability reporting requirements under CSRD:

1. Double materiality: Historically, many organizations only reported on the risks that climate change created for them. But under CSRD, they’ll also have to report on how their activities are impacting the climate.
2. Scope 3 emissions: These are emissions that happen at some point in an organization’s value chain but not from assets owned or controlled by the reporting organization.
3. Targets: Reporting current performance isn’t enough. Organizations also need to set targets against which they’ll compare future performance.
4. Vastness of information: The scope of information reported under CSRD needs to cover an organization’s entire value chain.
5. Alignment with TCFD: The Task Force on Climate-Related Financial Disclosures, now integrated with the IFRS Foundation, has frameworks for this sort of reporting.
6. Link with European taxonomy: Reports must be in line with requirements from the EU Taxonomy.

Will auditors be checking ESEF-compliant reports?

Yes, you can expect that auditors will be involved in the review of ESEF-compliant reports. They’ll need to ensure that ESEF requirements have been met in these reports and that the information presented in them is accurate.

What does ESEF mean for EU-listed companies?

Companies that issue securities in the EU will need to ensure their financial statements are ESEF-compliant if their revenue or number of employees meets the requirements.

What does ESEF mean for non-EU-listed companies?

EU companies that don’t issue securities usually won’t need to produce ESEF-compliant reports. The same can be said of companies headquartered outside the EU unless they have significant business activities there—and securities are involved. These organizations may still want to produce financial reports that comply with ESEF for the following reasons:

• Investor expectations: Investors may start getting comfortable with the standardization and transparency that comes with ESEF reports, meaning companies trying to attract new investments will have to adapt.
• Competition: Even non-EU listed companies may have to produce ESEF-standard reports if they’re competing for capital and other resources with organizations that need to do so.
• Global reporting trends: Even if ESEF isn’t standard for most companies outside the EU, it may still be expected should it see more widespread adoption.

ESEF reporting example

The GLEIF (Global Legal Entity Identifier Foundation) recently produced an ESEF-compliant annual report in conjunction with ESMA, serving as an example of the new standard in action. If you open the file as a PDF, you won’t see anything particularly different; it looks just like any other annual report.

But if you use Inline Viewer to open the report (which you can do here) you’ll see all the XBRL tags in the report. Just click on any figure in the report, and you’ll get a side panel that shows you all the data encoded in it through that tag.

With XBRL, you get a report that’s clear and informative, while including a ton of data that software platforms can use for reporting, analysis, and more.

The best ESEF reporting software

What is ESEF reporting software?

ESEF reporting software allows organizations to create annual financial reports that are in line with ESEF requirements—all while performing other tasks essential to the Office of the CFO. Usually, you’ll find features for creating ESEF-compliant reports in financial performance platforms, corporate performance management (CPM) or enterprise performance management (EPM) software.

Why is ESEF reporting software worth the investment?

The right ESEF reporting software can save your finance team days building these essential reports, usually through automation and built-in ESEF requirements. Trying to keep track of all these requirements manually would cost more time and resources than the initial investment for acquiring that software.

Our top 3 picks for ESEF reporting software

Here’s a quick list of some of the best options for ESEF reporting software out there.

Prophix

Prophix is a fully integrated Financial Performance Platform that not only centralizes all the data you need for your annual reports but also allows you to report on it in an ESEF-compliant manner. Everyone who needs to contribute to these reports can do so in a collaborative environment with built-in dashboards and AI-powered features.

You can learn more about how Prophix facilitates ESEF reporting here.

Workiva 

Workiva is a financial reporting, ESG, and auditing platform trusted by some of the world’s largest organizations, from Chevron to Delta Airlines. With this platform, you can ensure that all your reporting processes are ESEF-compliant.

Insightsoftware

With Insightsoftware, abiding by ESEF requirements isn’t just a box to check off; it’s an opportunity. By preparing ESEF-compliant reports with this platform, you can create processes that are more transparent, more efficient, and more informative for everyone.

FAQs about ESEF

What does ESEF mean?

ESEF, short for European Single Electronic Format, is a new standard for regulatory reporting. It dictates that European companies listed on European stock markets need to send in their reports using a system called iXBRL (Inline eXtensible Business Reporting Language).

Who does ESEF apply to?

Generally, ESEF applies to European companies that issue securities on European markets, if they meet one of the following criteria:

• They’re a public-interest company with more than 500 employees.
• They have more than 250 employees, EUR 50 million in revenues, or EUR 25 million in assets.
• They’re a small or medium company in the EU listed on a regulated market.
• They’re a company based outside of the EU but with an EU-based branch or subsidiary that generated net revenues of EUR 150 million for two or more years.

What is ESEF tagging?

ESEF tagging is the process of adding XBRL tags to data in a report.

What is ESEF block tagging?

Instead of tagging single elements in a financial report, ESEF block tagging allows you to tag entire blocks or sections of that report as a single unit. This can save time on particularly extensive reports.

Can UK companies report under IFRS?

Since IFRS (International Financial Reporting Standards) apply worldwide, many UK-based companies choose to use them in their financial reports. They may be required to do so under certain regulations, or simply because they believe it’s best practice.

What is ESMA reporting?

The European Securities and Markets Authority (ESMA) puts out requirements for various reporting and disclosures, which EU-based companies that issue securities must abide by. Its equivalent in the USA is the SEC.

What is XBRL tagging?

XBRL tagging is a process of adding extra layers of information to data in a financial report through specific tags. These tags are picked up by financial software and can be used for validation and analysis.

What is an XBRL file?

These files contain financial, or business data tagged using XBRL, a standardized markup language that’s now required for certain institutions operating in the EU. Opening these files in an XBRL viewer allows you to see extra coded information that financial software scans for.

Does CSRD apply to the UK?

The CSRD applies to EU-based companies, but the UK is already working on expanding similar regulations for companies based there.

Who needs to comply with CSRD?

Any large company based in the EU needs to comply with CSRD if they meet two of the following three criteria:

1. EUR 50 million in net revenue.
2. EUR 25 million in assets.
3. 250 or more employees.

Non-EU companies need revenues above EUR 150 million for CSRD to apply.

Does CSRD apply to non-EU companies?

It can in certain circumstances, such as non-EU companies that have a branch based in the EU making a certain amount in revenue.

Conclusion: Stay current with ESEF reporting with Prophix

As the adoption of ESEF reporting spreads, investors, partners, and other entities will expect more transparent financial reporting using standardized language. If your current financial statements are prepared using tools that aren’t ESEF-compliant, you should consider an alternate solution.

Prophix is a fully integrated Financial Performance Platform that makes data collection, centralization, and analysis less of a time sink. Get all the data you need for ESEF-compliant reports at your fingertips without any extra work.

Want to see how? Watch our demo.