In the light of past risky financial market activities, Allen White calls for an urgent extension of non-financial reporting

In “Non-financial reporting: Denmark ups the ante” (published online, January 13 2009), Paul Hohnen provides a valuable account of Denmark’s move toward mandatory non-financial reporting for large Danish companies. Even with all its loopholes and exceptions, it is an action that merits the attention of governments and business worldwide.

Consider the case of the current global financial meltdown, in large measure a crisis of transparency, through the lens of non-financial reporting. Imagine if standardised, mandatory reporting had been in place during the last five years. Had this been the case, the financial industry – investment banks, commercial banks, pension funds and others in the value chain – would have been subject to mandatory reporting of the environmental, social and governance (ESG) risks associated with their policies, practices and products.

If such reporting had been required and, moreover, faithfully executed and verified, the societal consequences of mortgage-backed securities, credit default swaps and other exotic instruments at would have been exposed for their potentially disastrous consequences for families, pensioners, communities and whole nations. In this scenario, it is fair to say that the current financial crisis would have been substantially mitigated, if not fully avoided.

The debate over mandatory versus voluntary reporting has worn thin. The Danish action is laudable, but needs to be vastly scaled up. In a globalising world subject to the viral effects of ESG risks of business activity, it is time to move law, regulation, and stock exchanges in the direction of mandatory non-financial reporting. To do otherwise is an unacceptable dereliction of duty on the part of political and business leaders alike.

Dr Allen White
Co-founder and former CEO, Global Reporting Initiative
Director, Corporation 20/20