MAA310 Accounting and Society: Climate Change Risk Report

This report provides a critical evaluation of the importance of disclosing climate change-related risks to stakeholders, employing both agency and managerial branches of stakeholder theory. It emphasizes the significance of these disclosures to key stakeholders like investors and the community. The analysis focuses on the financial report of Metcash Limited, assessing the adequacy of its climate change risk disclosures. The report also identifies the challenges Metcash Limited faces in this area and offers recommendations for improving future disclosures. The discussion covers the importance of climate change risk disclosure to shareholders and other key stakeholders, exploring the challenges faced by Metcash Limited, and evaluating the adequacy of their climate change risk disclosures while providing recommendations for improvement. The report highlights the need for companies to proactively address climate change risks in their financial reporting, aligning with stakeholder expectations and regulatory requirements.

Running head: ACCOUNTING AND SOCIETY
Accounting and society
Name of the Student
Name of the University
Author Note

ACCOUNTING AND SOCIETY
Executive summary:
The report demonstrates the critical evaluation of the importance of disclosure of climate
change related risk to the stakeholders using agency and managerial branch of stakeholder
theory. This incorporates the discussion on the importance of such climatic risk disclosures to
the key stakeholders such as investors and community. The analysis of the importance of the
climatic change related risk disclosure has been done by retrieving the information from the
annual report of one of the listed companies that is Metcash limited. Analysis of the financial
report has been done to evaluate the adequacy of the disclosure of climate change related risk.
The later section of the report outlines the recommendation for improving the disclosure by
the reporting entity.

ACCOUNTING AND SOCIETY
Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Evaluating the importance of climatic change related risk disclosure matters to shareholders:3
Identifying the importance of climatic change related risk disclosures to key stakeholders:....4
Identifying the challenges that would be encountered by Metcash limited in relation to
climate change risk related disclosure:......................................................................................6
Evaluating the adequacy of disclosure of climate change related risk of Metcash limited and
recommendation for improvement:............................................................................................7
Conclusion:................................................................................................................................9
References list:.........................................................................................................................10

ACCOUNTING AND SOCIETY
Introduction:
The paper is developed to conduct a detailed investigation on the importance of the
disclosure of risk related to climatic change to the stakeholders. Listed companies or the
reporting companies are required to make the disclosure of the climatic risks face to their
management in the financial report according to the requirement of ASIC (Australian
securities and Investment commission). For evaluating the climate change related risk, the
chosen organization is Metcash Limited which is a leading manufacturer, distributor and
wholesaler of Australia. The key stakeholders emphasizing on the disclosure of climatic risks
have been identified using stakeholder theory. Report outlines the evaluation of the financial
report of Metcash limited for identifying the adequacy of the disclosure of the information on
the climatic risks. In relation to this, the challenges that would be encountered by Metcash
regarding the disclosures of climatic change has been also identified and discussed. The later
section of the report outlines the recommendation made to the company for improving their
risk disclosure related to climatic change.
Discussion:
Evaluating the importance of climatic change related risk disclosure matters to
shareholders:
One of the growing areas of research interest is the disclosure of information by the
corporates on the climatic change. When accounting for the corporate social responsibility of
the company, the perspective of stakeholder theory is relevant. The disclosure practice of the
reporting entities can be explained by agency theory that provides a description of the
relationship between the shareholders and managers of the organization. The separation of
control and ownership of firms can be explained results in the occurrence of agency
problems. Agency theory incorporates the problem of the shareholders owning the company

ACCOUNTING AND SOCIETY
whilst directors controlling the company (Datt et al. 2018). It is highlighted by the evidence
gathered from the literature on accounting that there has been increasing demand for the
information disclosure on the social and environmental performance of the corporates from
various groups of stakeholder. Therefore, the disclosure of the information on the climate
change related risk is considered to be an agent issue as the stakeholders are the principals
that influences the disclosure and accountability related to change in the climatic conditions.
Agency theory helps in aligning the interest of the stakeholders with the managers regarding
the disclosure of the risks related to climatic change. Managers are expected to have implicit
relationship with all the stakeholders and reporting of all the environmental information is
targeted at all the stakeholder groups. The allocation of resources of the stakeholders can be
legitimately claimed by all types of stakeholders due to existence of mutual dependency
(Haque et al. 2017).
Identifying the importance of climatic change related risk disclosures to key
stakeholders:
Several groups of stakeholder have increased their demand for the disclosure of
information on the environmental and corporate social performance. The concerns about the
climatic change have been highlighted by stakeholders such as suppliers, media, consumers,
NGO’s, scientific community and other professionals. That is the risks related to climatic
change is crucial to wide range of stakeholders and it is argued by the stakeholder theory that
there are various constituents groups an organization has relationship with and the support of
the groups is maintained by balancing and considering their interest. Managers of the
organization are portrayed as individuals who are concerned about the legitimate interest of

ACCOUNTING AND SOCIETY
their key stakeholders (Fernando et al. 2017). It is required by them to manage the interest of
different stakeholders by effectively distribution of the scare resources.
The concerns about the climatic conditions is of crucial importance to the key
stakeholders such as media, suppliers, shareholders and community. One of the biggest risks
faced by the business is related to climatic change as it tends to impact the profitability, cash
flow and value generated. It is argued by researcher that the specific information related to
climatic change is sought by the stakeholders and thereby emphasizing on the corporate
governance information (Li et al. 2016).
The managerial branch of stakeholder theory provided the evidence of the notion of
the power of stakeholders where the expectations of the powerful stakeholders is mainly
focused by the managers. The extent to which the resources are controlled by the
stakeholders determines the influencing power of the particular stakeholders on the corporate
information. Disclosure of the climatic change information is done to the demand of
particular stakeholders about the procedures and policies that addresses the climatic change.
The mainstream business issue is the risks related to climatic change and such risks should be
considered by the issuers as a part of their ongoing disclosure and risk management process
as it is essential to make the disclosure of the risks that is material to the business (Ahmad
2017).
The disclosure of the climatic change related risks is attributable to three factors
which incorporates the room for disclosure improvement, increased interest of investors and
the global and domestic development. Some particular group of stakeholders such as
institutional investors are concerned about the disclosure of the climatic change related risk
and have focused on such disclosure as they complain about the inadequate disclosure of such
information by the reporting entity. In this regard, the increased disclosure of climatic change

ACCOUNTING AND SOCIETY
related risks have received major attention so that they are able to provide material
information to such particular group of stakeholders for making informed voting and
investing decision (Warner 2015).
Identifying the challenges that would be encountered by Metcash limited in relation to
climate change risk related disclosure:
The disclosure of climatic change related risk in the financial report of the company
would provide guidance to the shareholders on the disclosure and identification of risks in
relation to climatic change. That is the disclosure of such information would provide much
concerned information to the key stakeholders, but their inclusion poses some challenges. In
light of this, the three challenges that would be encountered by the business of Metcash
limited are explained in the points mentioned below:
 Cost concerns- One of the major issues for the policy for climatic change is setting
and determining the price for the emission of greenhouse gases. It has been found that
the market decides the emission price and the limitation on the emission of
greenhouse gas by the organization every year is incentivized by allocating the
allowances. In addition to this, significant economic impact can be created by the
decision to allocate the permit emissions (Ngu and Amran 2018). Hence,
determination of the costs for disclosing the climatic change related risk information
would push up the cost of reporting.
 Determination of climatic risks materiality- It is important for the issuer such as
Metcash Limited to make disclosure of the material information relating to climatic
risks that has a likely impact on the investment decisions. This is so because the
concerns of the investors regarding the disclosure of climatic change related risk is to
make an accurate investment decision. Determining materiality with the objective of

ACCOUNTING AND SOCIETY
information on the climatic change risk is based whether the investment decision of a
reasonable investor would be influenced if there is any misstatement or omission of
such information. In order to evaluate the risks in a better manner, the existing method
of risk assessment needs to be adapted that would require account adjustment for
longer time horizon. In addition to this, assessing materiality relating to the risks of
climatic change also requires the issuer to make an identification of both transition
and physical risks and also account for qualitative and quantitative factors (Hart
2015). Therefore, it can be inferred that the identification and assessment of climatic
change related risks could be difficult for the issuers such as Metcash Limited due to
potential long term horizon and uncertainty levels. Moreover, disclosure of the
climatic change related risks should not be limited to the short term effects.
 Modeling uncertainty- The modeling of the uncertainty scope is impacted by the
implications of uncertainty. Stakeholders such as investors are mostly concerned
about the financial impact of the disclosure of the climatic change related risks.
Accurate anticipation of the financial impact of change in the climatic condition is
one of the challenges posed by the climatic information disclosure (Fernando et al.
2017). In this regard, the extent of the disclosures needs to be carefully determined by
the company. Therefore, the detailing and framing of the disclosures should be done
prudently by Metcash limited.
Evaluating the adequacy of disclosure of climate change related risk of Metcash limited
and recommendation for improvement:
Metcash Limited is a leading marketing and wholesale distribution company that
bases its business strategy on being a responsible corporate citizen. Continuous efforts are
made by the organization towards environmental and social progress particularly in regard to

ACCOUNTING AND SOCIETY
support for the community, energy usage, reducing gender pay gap and safety. When it
comes to deal with the environmental impact, organization is committed towards responsible
sourcing of the products across the independent retailer network and within the business. The
energy consumption has been reduced by the implementation of initiatives and this implies
that the organization carries out its operation in a socially responsible manner. It has been
observed from the current annual report of Metcash Limited that there is disclosure on the
matters related to corporate social responsibility (metcash.com 2019). However, there has not
been any disclosure on the climatic change related risk and hence it is required by the
reporting entity to make a disclosure of such information. In the absence of the disclosure of
the climatic change related risks, it is essential for making recommendation to improve the
disclosure on the climatic change related risk. Some of the recommendations for improving
the disclosure in relation to climatic change are as follows:
 Firstly, the disclosure of the information related to climatic change related risk should
be done by Metcash limited according to the sector in which the company operates.
Such disclosure should not only account for the short term effects and the impact
crated by the disclosure should be quantified. Assessment of climate change related
risk should be done on regular basis for ensuring that the risk factors are addressed
and considered (McIntyre et al. 2018).
 Four elements should be incorporated by Metcash limited in the recommendations for
climate change related risk that involves strategy, governance, and metrics and risk
management. There should be a balance between the organizational need and
transparency requirements for the investors and stakeholders (Rissman and Kearney
2019).
 Management of the reporting entity should adopt a proactive and probative approach
to the identification of climatic change related risk. In addition to this, assessment,

ACCOUNTING AND SOCIETY
identification and risk management should be done by the maintenance and
development of effective and strong corporate governance. In the event of disclosure
of material risk relating to climatic change, it is important that the organization
complies with the laws. The preferred standard in this regard is the voluntary
framework that has been developed by “climate related financial disclosures”
(Cortekar et al. 2016).
 In relation to the management, consideration and disclosure of the material risks
impacting the company, it should be demonstrated by the directors of the organization
that all the legal obligations have been met in such regard.
Conclusion:
The report prepared to evaluate the importance of the disclosure of climatic change
related risk have ascertained that wide range of key stakeholders have placed considerable
importance on the disclosure of such risks. It has been also found from the managerial branch
of stakeholder theory that the legitimate interest of all the stakeholders is accounted by the
managers. With the growing interest of the stakeholders towards increased focus on the
climatic change related risk disclosure, managers should take all the measures to prudently
address the needs and interest of all the stakeholders. While the disclosure of climatic change
related risk is of paramount importance with the growing needs of transparency from
stakeholders, organizations disclosing such information would be facing with some key
challenges concerning uncertainty, materiality determination and rising costs. The report also
evaluated the information from the financial report of Metcash Limited have found that the
reporting entity does not make any disclosure of climatic change related risks and hence, they
are recommended on improving the disclosure of information on the climatic change related
risk.

ACCOUNTING AND SOCIETY
References list:
Ahmad, F., 2017. Beyond the horizon: corporate reporting on climate change. Center for
Climate and Energy Solutions.
Cortekar, J., Bender, S., Brune, M. and Groth, M., 2016. Why climate change adaptation in
cities needs customised and flexible climate services. Climate Services, 4, pp.42-51.
Datt, R., Luo, L., Tang, Q. and Mallik, G., 2018. An international study of determinants of
voluntary carbon assurance. Journal of International Accounting Research, 17(3), pp.1-20.
Deloitte Russia., 2019. Task Force on Climate-related Financial Disclosures | Deloitte CIS |
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on-climate-related-financial-disclosures.html [Accessed 4 Dec. 2019].
Fernando, C.S., Sharfman, M.P. and Uysal, V.B., 2017. Corporate environmental policy and
shareholder value: Following the smart money. Journal of Financial and Quantitative
Analysis, 52(5), pp.2023-2051.
Haque, S., Deegan, C. and Inglis, R., 2016. Demand for, and impediments to, the disclosure
of information about climate change-related corporate governance practices. Accounting and
Business Research, 46(6), pp.620-664.
Hart, N., 2015. Moving at a Glacial Pace: What Can State Attorneys do about SEC
Inattention to Nondisclosure of Financially Material Risks Arising from Climate
Change. Colum. J. Envtl. L., 40, p.99.

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Li, F., Li, T. and Minor, D., 2016. CEO power, corporate social responsibility, and firm
value: A test of agency theory. International Journal of Managerial Finance, 12(5), pp.611-
628.
Mars-metcdn-com.global.ssl.fastly.net. (2019). [online] Available at: https://mars-metcdn-
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McIntyre, J.R., Ivanaj, S. and Ivanaj, V. eds., 2018. CSR and Climate Change Implications
for Multinational Enterprises. Edward Elgar Publishing.
Metcash | Australia’s leading wholesale distribution and marketing company., 2019. About
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Available at: https://www.metcash.com/about-us/ [Accessed 4 Dec. 2019].
Ngu, S.B. and Amran, A., 2018. Materiality disclosure in sustainability reporting: fostering
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Rissman, P. and Kearney, D., 2019. Rise of the Shadow ESG Regulators: Investment
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Sharma, D.S., Sharma, V.D. and Litt, B.A., 2017. Environmental Responsibility, External
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Warner, B.M., 2015. Placing Al Gore on the Board: Accounting for Environmental Risk in
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