ACX3800|5800 Accounting for Climate Change Assignment 1

Weighting: 20% of the total marks for the subject (marked out of 50 in total) Due Date: To be submitted on 2 July 2023, 11.55 p.m. the latest

Word Limit: No formal word count. Page limit of 4 pages/slides; does not include Reference List.

Formatting: How you choose to present this piece of assessment is up to you (i.e., you can include

images, diagrams, tables, images, key reflections etc). Descriptions do not necessarily have to take the form of pure texts.

Referencing: Reference List should be included on an additional page/slide at the end of the report and is not included in the 4-page/slide limit. Applied standards do not require referencing Please also see the resources on Academic Integrity on Moodle in the Section “Topic Schedule and Assessment Summary”. Information on how to appropriately declare the use of material obtained through the use of Generative AI can be foundhere.

Learning objectives assessed

This assignment is designed to assess your achievement of the following unit learning outcomes:

1.   Evaluation of the role of accounting in addressing climate change and related issues

2.  Application of critical thinking, problem solving, and communication skills to individual activities dealing with climate change issues

3.   Evaluation of opportunities and challenges of integrating information on climate change and associated risks into financial reporting, management information, and decision-making      systems

Overview Assignment 1:

The assignment requires you to explore how an organization can account for the impact climate change has on the business by drawing on predefined accounting/reporting frameworks. Applying what you have learned in class and combining it with your own research, you are asked to prepare an initial climate change report for a fictious organisation. Research skills involve searching for and the synthesis of information, a reflection on different sources of information in the context of the challenges and opportunities that the organization faces, as well as the communication of your findings. The task will also assist in the further development of your communication skills. Students are provided an opportunity to evaluate and communicate accounting-based information in creative ways. This assignment is to be undertaken individually. Detailed information is provided below.

Assignment 1 : Climate Change Report for the Board

“Impact of Climate Change on Business”

You have just been hired as Chief Sustainability Officer (CSO) of Gringotts.

Gringotts, founded in 1990 and headquartered in Narnia, is a leading agribusiness group. Gringotts is ranked amongst the largest listed companies by market capitalisation on the Bree stock exchange in the European Union (EU). Gringotts’ business activities include oil palm cultivation, oilseed crushing, edible oils  refining,  sugar  milling  and  refining,  manufacturing  of  consumer  products,  specialty  fats, oleochemicals, biodiesel and fertilisers as well as flour and rice milling.  Gringotts has over 500 manufacturing plants and an extensive distribution network covering more than 50 other countries. The Group has a multinational workforce of more than 90,000 people. Gringotts’ portfolio of high quality processed agricultural products is the preferred choice of consumers and the food manufacturing industry. Its consumer-packed products have a leading share in many countries. Through scale, integration and the logistical advantages of its business model, Gringotts can extract margins at every step of the value chain, thereby reaping operational synergies and cost efficiencies.

You were hired based on your experience and expertise in accounting for climate change. The treasury of Narnia has just announced that companies will have to provide a climate change report for all reporting periods as of 1 January 2024. Specifically, Narnia is implementing the recommendations of the Taskforce for Climate-related Financial Disclosures (TCFD) as mandatory standards.

Gringotts’ business strategy has so far focused on profit maximization, with sustainability accounting and reporting being done only to appease opposition voices. However, over the last 12 months, revenue and thus profit have decreased as the company had to deal with supply chain issues caused by floods and other climate change related issues. The Executive Board is eager to address these issues and gain an understanding of how climate change is affecting the business and its financial position.

After just 4 weeks as CSO, the Executive Board asks you to prepare a climate change report focused on ‘Strategy’ and ‘Risk Management’ which accounts for how climate change will impact on the business. In detail, the Board wants the report to be drawn up in accordance with the TCFD recommendations and entail the following information:

•   Identification of the top five actual and potential climate-related risks (physical and transition) and opportunities which information is material

•   Description of the identified climate-related risks and opportunities over the short-, medium-, and long-term, including identification of the risk type (e.g., regulation, market, technology, reputation)

•   Description of the impact of the identified climate-related risks and opportunities on Gringotts business, strategy and financial planning

•   Description of how you plan for Gringotts to manage the identified climate risks

In response to the Board’s request, you ask your team to provide you with as much climate change related information as possible based on the data available from 2022 and 2023. Drawing on your expertise about the TCFD and climate change accounting, your own research and the data provided by your team (see below), you draw up the report. When doing so, you exercise management judgement and make informed assumptions when deemed necessary.

It is your idea to include a section on ‘gaps’ (e.g., missing but required data for compliant reporting) in your report, which will inform the Executive Board on what other data Gringotts needs to collect in future to be able to fully comply with the TCFD recommendations.

Information and Data from your Team

•  The largest percentage of Gringott’s revenue (20-40%) is derived from palm oil and palm-derived products (e.g., palm-based biodiesel & oleochemical products). Sugar constitutes around 10% of our total revenue in previous financial  years and this  is derived  from the  revenue generated from all  our sugar  milling, merchandising, refining and consumer products. The "Oilseeds and Grains" segment consists of a wide range of agricultural commodities including soy, wheat, rice, rapeseed, sunflower seed etc. and the total revenue is the sum revenues of all commodities within. Contribution from any single commodity would be of a lower range (e.g., soy around 20-40%, rice less than 10%, wheat less than 10%).

•  Gringotts’ company-wide Enterprise Risk Management process assessed climate-related risks in 2022 for the first time. To be considered as having substantive financial impact on the business, the potential annual implications (costs/benefits) of such risks or opportunities would have to exceed AUD 100,000 per issue.

•  At an operational level for palm oil mills in Gordon, due to the lower limit of discharge emissions allowed for boiler stack monitoring, more investments must be made to ensure the mills are kept within the acceptable range or run the risk of getting fined by the Department of Environment (or revoke of permit for multiple offences). Similarly, the Narnia Sustainable Palm Oil requirements which include mitigating environmental issues related to climate change has been made mandatory as per Narnia’s President's decree by 2025. Depending on how severe an emission reduction is required from our operations, additional investments would have to be put in place to ensure compliance. In a worst-case scenario, operations that are unable to meet the new requirements could have huge financial implications if business licenses and production approvals are not renewed. Considering 100% output from plantations are processed in our own mills and supplied to our manufacturing operations, the estimated volume of crude palm oil and palm kernel that could be disrupted with closure of own mill operations could be around 4-6% of refineries' supply, which can roughly translate to about AUD 970-1,450 million potential financial impact.

•   Erratic weather conditions like heavy rainfall can reduce the yield obtained from the palm oil trees (fruits saturated with water, difficulty to gain access for harvesting, etc.).

•   Investments into Research &  Development (R&D) to develop palm seedlings with better resilience to diseases/pests and drought tolerant at an amount of AUD 150,000 were made in 2023.

•  27 supplier groups have been suspended by Gringotts since 2020 due to deforestation and if non-compliance by suppliers continue, it would adversely impact the overall supply to our business.

•  Access to EU market is driven by strict climate-related requirements (Renewable Energy Directive). The European Union's Renewable Energy Directive (RED) mandates the levels of renewable energy use within the European Union and requires 20 percent of the energy consumed within the region to be renewable.

•   Increasing frequency of severe weather events has increased the volatility of crop production, spreading new diseases and pests which cause disruption to the wider ecosystem.

•   Increase in global temperatures will impact the soil fertility which affects yield.

•   Increased scrutiny from NGOs and consumers over business campaigns can lead to potential reputational impacts, reduced demand or boycotts.

•  Customer companies are committing to emission reduction targets, and some have climate-related terms within procurement contracts to ensure their Scope 3 emissions are managed accordingly.

•  We currently do not have an organizational strategy that includes a transition plan that aligns with a 1.5°C world

•   Regulations on the use of renewable energy may drive the demand for sustainable biofuels or biodiesels. The use of biogas generated from palm oil mill effluents can also reduce our dependency on diesel for electricity generation.

•  With raising awareness by consumers on climate change and sustainability issues, there is a growing demand for new products or services with reduced negative environmental/social footprint. We are currently field testing selected genetic markers against fresh fruit bunches yields in sampled palms that were supplied by our plantation in Narnia. If found to be successful, this research may enable us to halve the breeding process time compared to conventional methods.

•   Potential reduction of fresh fruit bunch supply due to prolonged droughts. Plants located in countries with a wet tropical climate necessary to support the cultivation of oil palm, a crop that has a high-water requirement.

•   During the early days of oil palm's expansion, forests, peatlands and biodiversity were adversely impacted and coupled with traditional slash-and-burn method for land clearance practiced by communities in Narnia, these past industry practices have resulted in an increase in carbon emission.

•   Due to the wide-ranging types of businesses under the group and the varying levels of maturity in terms of climate change management, any approach to target setting would have to factor in the different needs and expectations from the different subsidiaries within the group.

•   In our palm and sugar upstream operations, Gringotts follows a circular economy approach of reusing waste biomass wherever possible, such as for mulching.

•   Emerging regulations to restrict emissions or promote adaptation might lead to increased capital and operational costs, and restrictions in expansion of production land.

•  At this stage, accounting of Scope 3 emissions is in progress and the outcome would provide the overview on the emissions from the consumption of our products based on processing of sold products, use of sold products and end-of-life treatment of sold products. As a Food and Beverage (F&B) company, more than 80% of total Scope 3 emissions is expected to be from purchased goods. We also considered the other 14 categories listed under GHG Protocol in our mapping, but we do not consider other source(s) of Scope 3 emissions relevant.

•  Since January 2022, a total of 12,091 trees from 79 species have been planted in both Gordon and Narnia. The carbon sequestrated was estimated based on the number of trees planted and carbon sequestrated per year (25kg) over 40 years of life span.

•  Gringotts has a zero-burning policy throughout our oil palm plantations to ensure that emissions from open burning are avoided. Also, we adopt a zero-burning replanting method through mechanical means in our own operations and assists our subsidiaries whenever help is requested.

•

Assignment Submission

The above question should be answered through a climate change report (not a formal report) and     submitted electronically on Moodle before 2 July 2023 at 11.55 p.m. the very latest via Moodle. The    report can be prepared with any word processing (e.g., Word) or presentation software (e.g., PPT,     Canvas etc) and should be uploaded in a .pdf format. You may include photos, figures, tables or        images in your report. The report should be accompanied by a cover page/slide appropriate for the     content of the report/presentation. This cover page/slide should show your name and student ID. Do not include the submission cover page provided by the university, the content of this is covered by the online submission system.

Use of Generative AI

Generative AI tools are restricted for this assessment task

In this assessment, you can use the following generative artificial intelligence (AI) only: image generators. Any use of generative AI must be appropriately acknowledged (see Learn HQ).

Assessment Criteria

Your work for Assignment 1 will be marked out of 50.

A matrix outlining the assessment criteria for the report, and how your work will be assessed against these criteria is provided below in Appendix A.