Investors and other stakeholders have long called for a single set of global sustainability reporting standards (see, for example Blackrock (2021)). Until recently, sustainability reporting was predominantly voluntary, with GRI (Global Reporting Initiative) Standards the most commonly used by large global companies (KPMG, 2020). An important change from voluntary to mandatory occurred in the European Union (EU) through the EU Commissions Non-Financial Reporting Directive (NFRD) (2014) which mandates that certain large EU companies include sustainability disclosure under the following categories in their management report: environmental, social and employee, respect for human rights, anti-corruption and bribery, and diversity. Furthermore, on 21 April 2021, the EU Commission adopted a proposal for a Corporate Sustainability Reporting Directive (CSRD), which amends the existing reporting requirements of the NFRD and tasks the European Financial Reporting Advisory Group (EFRAG) to develop EU sustainability reporting standards. Another significant event in the global sustainability standard-setting space was the announcement by the IFRS Foundation Trustees on 3 November 2021, of the formation a new standard-setting board, namely the International Sustainability Standards Board (ISSB), which is tasked to develop a global set of sustainability reporting standards. An important focus of global standard setters has been on climate-related disclosures. The ISSB has published two draft sustainability standards so far: IFRS S1 General Requirements for Disclosure of Sustainability-related Financial information Exposure Draft (ED) and IFRS S2 Climate-related Disclosures. IFRS S2 (ED) builds upon the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) and industry-based disclosure requirements of the SASB Standards. There is a long history of climate-related risk disclosures being located outside the financial statements, such as in management commentary, other sections of annual reports, separate sustainability reports and corporate websites (KPMG, 2020; You & Simnett, 2022). Thus, there may be some inertia to move disclosures into the financial statements, despite recent IASB educational material Effects of climate-related matters on financial statements (IASB, 2020) which sent a strong signal highlighting that some climate-related risk disclosure should instead be located within the financial statements. Further, although IFRS S2 Climate-related Disclosures ED (ISSB, 2022b) provides guidance on what baseline climate-related disclosures may be required, much judgement is needed to decide where various disclosures should take place within corporate reporting. IFRS S1 General Requirements for Disclosure of Sustainability-related Financial information ED (para72) (ISSB, 2022a) states that material sustainability disclosures should form part of its general purpose financial reporting, providing examples of the management commentary (para73) and financial statements (para75) as potential locations. Thus, preparers need to exercise judgement to decide on the location of climate-related risk disclosures. 4 The location of disclosures is important since IAS1(para14) emphasises that disclosures presented outside financial statements are outside the scope of IFRSs. Location also matters from an audit perspective, as financial statements are audited at the higher reasonable assurance level, whereas the remainder of the annual report is reviewed by auditors to ensure it is materially consistent with the financial statements and auditors knowledge (You and Simnett, 2022); some specific items may be subject to limited assurance. Users may also place more reliance on disclosures in financial statements compared to other sections of the annual report since it is audited to a higher level. Many jurisdictions have introduced (e.g., New Zealand and the United Kingdom) or are contemplating (e.g., United States of America, Switzerland, Singapore, Australia) mandatory requirements for large businesses to disclose their climate-related risks (Australian Government. The Treasury, 2022). Another trend impacting companies in Australia, is the crackdown of ASIC on greenwashing. See the Australian Financial Review article (attached): The Australian Securities and Investments Commission is investigating multiple super fund trustees and listed companies for allegedly lying about their green credentials, as regulators crack down on greenwashing (AFR, 2023, p1). 5 2.

REQUIRED: Part A and B (100 marks) Part A: Short Report (95 marks) (max 1000 words) You are a recent Accounting graduate working for a second tier business services firm, called CalmAccount, in Australia. A client, Green Ltd, has approached your firm for advice regarding their climate-related reporting. Green Ltd is a medium sized supermarket chain in Australia. They have recently adopted a sustainability strategy which includes a key aim of reducing their carbon emissions in their operations and value chain. Their competitive edge includes being more environmentally friendly than their competitors. They would like to know more about climate-related disclosures by understanding what large companies in Australia are disclosing and what the new International Sustainability Standards Board (ISSB) may expect from companies in the future. Required: Your manager has asked you to assist with drafting a short report for the CEO (Chief executive officer) and CFO (Chief finance officer) of Green Ltd covering the points below. Your manager will then edit your work to make it relevant to Green Ltds queries. I. Provide a comparative analysis of the climate-related disclosure in the 2022 annual reports of Coles Ltd and Woolworths Ltd. (40%) Guidance: This could include comparison of factors like: extent of disclosure, types of disclosure (policies, metrics, qualitative etc.), where the disclosures are located (section of the annual report), whether included in remuneration contracts, whether impacting the financial statements (including the notes), and which notes are affected. The focus here is what is disclosed rather than whether the company is performing well or not in relation to climate-related matters. Note: Please compare, dont summarise the two companies disclosures separately explain the similarities and differences. Hint: while you certainly should thoroughly read the annual reports, you can check that you didnt miss any important aspects by using the find function for climate. II. Discuss the extent to which Coles Ltd and Woolworths Ltd 2022 annual report climaterelated disclosures meet i) the requirements proposed in IFRS S2 Climate-related Disclosures ED and ii) the IASB educational material Effects of climate-related matters on financial statements (IASB, 2020). (40%) Guidance: For IFRS S2, you can focus on the disclosures mentioned on p32-42. You dont need to provide detail in relation to individual disclosure items. Instead, you can discuss the extent to which the companies meet the requirements for the following areas (from IFRS S2) as a whole: Governance, Strategy, Climate-related risks and opportunities, Strategy and decision-making, Financial position, financial performance and cash flows, Climate resilience, Risk management, Metrics and targets. 6 III. In your opinion, which of the two companies seems to be better at reporting climaterelated information in their annual reports? Please explain your opinion. (5%) IV. Now consider the two companies climate-related strategy, practices and climaterelated performance. As an investor, which company seems to be performing better in relation to climate impact? Please explain your answer.(5%) V. Do you think that companies that are good at climate-related disclosure are usually better at managing climate-related impacts i.e. does good reporting necessarily imply good practices? Please explain.(5%) VI. In your opinion, are there any climate-related disclosures in the Coles or Woolworths 2022 annual reports that you think could attract the attention of ASIC for greenwashing violations? Explain why or why not. What measures can organisations in general put in place to assist in avoiding greenwashing claims? (5%) Part B: Email (5 marks) (max 200 words) You have an uncle who is an English teacher (without a formal accounting background). He has asked you (your familys star business student) to explain how climate change may affect the numbers and information in the income statement and balance sheet of companies and to provide some examples. Required: Please write an email to your uncle to answer his question. Note: Your written email response should be much less formal and should be in a style and format that is easily understood by a non-accountant. No references are required for the email.