Blog by WikiRate: “As artificial intelligence becomes increasingly commonplace, it is being presented as a solution for a broad swathe of tasks across different sectors. Company sustainability reporting is one example, which will be mandatory for companies operating in the EU with a turnover above €450 million and 1,000+ employees from 2027.
The European Sustainability Reporting Standards (ESRS) require companies to report digitally tagged data about their impact on the environment for the first time, helping data users understand companies’ exposure to risk and their effects on people and the planet.
However, a recent discussion paper from an organisation representing some of Germany’s largest companies argues that the digital tagging¹ of sustainability data is too costly and that AI should take over this task.
But could and should we use AI alone to digitally tag companies’ sustainability reports?
What is Digital-Tagging and why is it important for data users?
In the US and the EU, it is already standard practice for financial reporting data to be digitally tagged. The practice means hundreds of data points can be easily identified and quickly compared. Think of it like adding a footnote or reference to an essay. When a tag is added to a data point in a report, that point is added to a reference list, making it searchable, downloadable and comparable across companies.
Digital tagging will soon be extended to companies’ sustainability data reported under the ESRS. The sustainability standards will inform data users, including investors, governments, and the public, how well they understand and respond to risk. For example, green transition plans, supply chain grievance mechanisms, and workforce data demonstrate a company’s preparedness for environmental or human rights based risks. This information is crucial for enabling investors, policymakers, and consumers to make informed decisions regarding companies.
However, this development has not been universally welcomed, and some companies are arguing that “AI makes iXBRL [digital tagging] reporting increasingly obsolete. […] Given the significant costs and risks for issuers and the lack of added value for investors the only meaningful consequence would be to abolish ESEF/iXBRL reporting requirements entirely.”..(More)”
