Webinar | Making the case: Why sustainability should matter to CEOs and Boards — Transcript

Full transcript

1. 0:01Good morning everybody and welcome to our webinar  or sustainability webinar for February 2026. Now
2. 0:09in this month's webinar we're looking at a very  important topic and that is making the case,
3. 0:15why sustainability should matter to CEOs and  boards. Um I you know we scheduled these topics
4. 0:24um towards the end of last year and little did  I know that the hottest topic in the month of
5. 0:31February would be um what questions  boards should be asking finance teams
6. 0:39and sustainability experts when they review and  when they look at draft mandatory sustainability
7. 0:46reports. So for some reason we got the topic  right. Um so today it's all about the boards
8. 0:52all about CEOs and their expectations around  sustainability and sustainability reporting.
9. 1:00Now today I'm joined by Claudia Warszawski who's  a senior manager our sustainability reporting
10. 1:08uh team here in Melbourne. Now Claudia  is incredibly experienced. She's helped
11. 1:14many of our group one clients getting ready  for uh AASB S2 and and currently Claudia we
12. 1:23are presenting to many boards. We are dealing  with many auditor queries. So we're really in
13. 1:29the thick of things. So thank you very much for  joining me today. Thank you for having me. Now,
14. 1:38BDO acknowledges the traditional custodians  of country throughout Australia and their
15. 1:44connections to land, sea, and community. And we  pay our respect to their elders, past and present,
16. 1:51and extend that respect to all Aboriginal  and to our Torres Strait Islander peoples.
17. 2:00Um, as you know, we've got our monthly  sustainability webinars. Um it's already
18. 2:06the second one for 2026 and from March  onwards we're going to pivot back to our
19. 2:12favorite sustainability disclosure standard AASB  S2 climate related disclosures and we're really
20. 2:20focusing on helping um our clients whether  they are group one, group two or group three
21. 2:27get ready and we we're going back in March to  the climate science underpinning the standard
22. 2:34Then we look at governance. Um in May, very  important, we look at lessons that we've
23. 2:40learned from year 1 31 December 2025 reporters.  Um we look at climate risk um assessments and so
24. 2:50forth. So that's the schedule for the year.  Um remember if you attend these sessions,
25. 2:56you can get a CPD certificate. Um so you should  receive it afterwards. If you miss a session
26. 3:02or if you have to leave early um we do make  the recordings available on our BDO Australia
27. 3:09website. We also make the powerpoints available on  on the BDO website or a PDF of the presentation.
28. 3:16So all the material is there for you and you can  actually look at recordings of what we've done
29. 3:21over the last five years. Um we also do IFRS  and corporate reporting webinars these days.
30. 3:28my fellow partner Dean Ardern are running with  those. Um I know last week he looked at business
31. 3:35activities and IFRS 18 and why they are central  to implementation. So this year he'll really focus
32. 3:42on the new IFRS accounting standards IFRS 18. I  will join him on occasion during the year to talk
33. 3:52about all things sustainability but really Dean  is running with that one. I also wanted to flag
34. 3:59that BDO is incredibly proud to be a a sponsor and  a partner with the AFR on sustainability leaders.
35. 4:10Um, and we will be a presenting uh we will be the  presenting and methodology partner for 2026 and
36. 4:182027. And the idea is to recognize organizations  delivering measurable sustainability impact. So if
37. 4:27you are interested and you want to find out more  about the program, there's a link on the right
38. 4:32hand side. Um and you know please consider whether  your organization could be a strong entrant.
39. 4:44Um I would also like to um announce that Quitch,  BDO and CPA Australia have partnered and we are
40. 4:55um um BDO has recorded videos which are made  available via the Quitch app on your mobile
41. 5:03phone. Um and it's being promoted to CPA members  as well. So it's tripatie partnership. Um, so if
42. 5:12you're looking for sustainability essentials  for financial leaders or professionals,
43. 5:18um, at the moment we've got five videos that  I've recorded, they between 10 and 15 minutes
44. 5:24each. You watch on your phone, you answer a  few questions afterwards generated by AI. Um,
45. 5:31and then you get a CPD certificate. Now the reason  we've done this is we thought there's a need for
46. 5:39board members and senior executives um to get  their head around the basics of sustainability
47. 5:47and in particular mandatory sustainability  reporting without sitting through lengthy
48. 5:52webinars or courses. So these are really aimed to  be short and sharp nano learning um on the go. Um,
49. 6:02so if you want to um promote something like  that to directors or or people in your business,
50. 6:08I think that's a good idea and you can  contact me for more information. Now,
51. 6:13we've recently earlier in February had another  carbon accounting master class. Thank you very
52. 6:19much for everybody that's attended. The  next one is on the 13th of May uh 2026. So,
53. 6:27you can start registering for those. We've  moved them now to the second week of the month
54. 6:33um so that people can first finish their monthly  reporting uh and then have time to come to the
55. 6:38carbon accounting master class. It is 9:00 to 5:00  p.m. Melbourne time. Um and you can register for
56. 6:45those. I should also say that Claudia and I will  both be in Sydney ne next week and on Tuesday we
57. 6:54are running master classes before the start of  the sustainability reporting summit in Sydney. Um
58. 7:02so the summit is from Wednesday to Friday but on  the Tuesday the day before uh Claudia and Natalia
59. 7:09another senior manager in our team are running a  master class across carbon accounting um and I'll
60. 7:17be running an advanced advanced sustainability  reporting master class. So we do hope to see
61. 7:22some of you there. Um and then if you've attended  the carbon accounting master classes um we invite
62. 7:29you to um attend our carbon accounting masterclass  alumni events. The next one is on the 11th of May
63. 7:37and we've started this because we want to make  sure that those people who've been part of our
64. 7:42carbon accounting masterclass cohort receive all  the latest and greatest information and therefore
65. 7:49we continue to invite you to the alumni events.  So, please put that in your calendar, too. Uh,
66. 7:55another uh shout out, we've got our AASB S2  disclosure checklist. Um, many people um are
67. 8:05have potentially drafted their first mandatory  sustainability report and now they're thinking,
68. 8:12did I did I deal with everything? Are there still  gaps? Um, and you know a good checklist to use
69. 8:20150 disclosures and also if you are at the start  of the journey and you're thinking what is this
70. 8:26going to look like at the end of the journey  what is it going to look like? We've got our
71. 8:30illustrative sustainability report that you can  download. Now for today's se um session uh we've
72. 8:39divided the webinar into three parts. In part A,  we want to look at an introduction to the role of
73. 8:48the board and the CEO. So in general, what's the  role of the board and the CEO? Then in part B,
74. 8:56we want to look at the role of this board and the  CEO around mandatory sustainability reporting,
75. 9:03which we know is a key focus at the moment.  Um, we're doing a lot of board presentations.
76. 9:10A lot of board members are trying to wrap their  head around what's been put in front of them.
77. 9:15They have to sign a director's declaration. So  what are the questions they should be asking? And
78. 9:21then in part C, we look at the role of the board  and the CEO across broad sustainability because
79. 9:28sustainability is not just about climate and it's  not just about mandatory sustainability reporting.
80. 9:35there's a whole big world around uh sustainability  that we want to explore and we believe the board
81. 9:41and the CEO should be interested in. So that's  the three parts general sustainability, mandatory
82. 9:49sustainability and then broad sustainability  three parts. So in the part A we thought we'll
83. 9:57start with the role of the board. Now um you  know the the board of directors oversee purpose,
84. 10:08strategy and risk to help create longterm value  for stakeholders. Um so important um if you look
85. 10:17at that very first bullet point uh we see the  word strategy and we know we have to do strategy
86. 10:24disclosures as part of 2 climate related strategy.  We see the word risk and again we know we have to
87. 10:32deal with risk management as part of AASB S2. So  the board are looking at purpose strategy risk.
88. 10:40Why? Because they want to create long-term value  for stakeholders and that strategy and risk also
89. 10:45covers climate related strategy and risk. um  emerging issues um material risks, increasing
90. 10:55regulations and stakeholder demands all compete  as priorities on the board's agenda. The board
91. 11:03would say we want to consider emerging issues.  So boards would consider AI as an emerging issue.
92. 11:11The board would consider sustainability, climate  related disclosures as an emerging issue. But more
93. 11:18importantly, the board will focus on material  risks to the business and the value proposition
94. 11:25for the business. There's increasing regulations  and we know there's AASB S2 and we know there's
95. 11:32stakeholder demands. We are seeing as group one  entities are starting to report they have demands
96. 11:40of their suppliers of entities in their value  chain around sustainability. And then the third
97. 11:47point there is that transparent communications  and strong oversight are more important than
98. 11:55ever to instill stakeholder confidence in a  company's long-term sustainability. Transparent
99. 12:03communications in our annual report. Strong  oversight by the board over those communications.
100. 12:11Um so I've included there a link at the top  um which is to the BDO center for corporate
101. 12:18governance and um where you can read a little  bit more about board responsibilities. But on
102. 12:25the right hand side um Amy is a partner in our BDO  US firm and she heads up the center for corporate
103. 12:33governance. She runs podcasts and all kind of  amazing stuff. She's a governance rock star. Um
104. 12:39and this is one of our quotes. Um board leadership  is more than the presence of a unique skill,
105. 12:47perspective or diversity of thought that will  meet the organization's needs and close its gaps.
106. 12:55Board members represent the company at its highest  level and they should continually and proactively
107. 13:03assess risk tolerance and set clear expectations  for management's execution of strategy and
108. 13:12reporting on relevant key performance indicators.  Um, and if I've got AASB S2 at the back of my
109. 13:20mind, the board members represent the company at  its highest level. They are overall responsible
110. 13:27responsible for AASB S2. They should continually  proactively assess risk tolerance around climate
111. 13:35and sustainability and set expectations  expectations of what management should
112. 13:40be doing. So this is very high level the the role  of the board and that's where the um you know the
113. 13:48buck stops with them. Um if you look at director's  duties um there's a wonderful publication by the
114. 13:56Australian Institute of Company directors um where  and I've got the link in there where they talk
115. 14:02about general duties of directors um and this is  even before considering sustainability reporting
116. 14:10um so if I look at this little diagram from that  publication um they've said um they should not
117. 14:18improperly use formation or their position.  They should avoid conflicts of interest. Um
118. 14:25they should prevent insolvent trading and they've  got statutory duties in relation to financial
119. 14:32recordkeeping and reporting and that has now been  extended also to recordeping around sustainability
120. 14:40reporting. Um they've got statutory duties in  the areas of financial services, consumer law,
121. 14:47um the environment and workplace health and safety  law. And many of those things are captured in
122. 14:53captured in broad sustainability. Very important  directors have to act with reasonable care and
123. 15:01diligence. And again, I can't help but bring the  connection um to sustainability. Um we know that
124. 15:08the directors for the first three years have  to sign off a director's declaration to say
125. 15:15that the entity has taken all reasonable steps  to comply with the sustainability disclosure
126. 15:22standard. So reasonable care and diligence and  then also directors have to act in good faith in
127. 15:29the best interest of the company and for a proper  purpose. So these are general directors duties as
128. 15:36discussed in this AICD document. So that's very  high level um role of the board directors or or
129. 15:46board duties. Now what about the CEO? What's the  role um of the CEO? So sometimes the CEO is the
130. 15:54director on the board, sometimes not. Um what's  really important is the second point is that the
131. 16:01CEO is the head of the executive team and manages  the dayto-day operations of the organization, its
132. 16:09people and resources. So the CEO implements the  strategy approved by the board. It ensures that
133. 16:16the organization structure and processes meet the  strategic and cultural needs of the organization.
134. 16:23Um and the CEO is expected to provide management  oversight and provide strong and clear leadership.
135. 16:32So generally a CEO is authorized and responsible  for the management of the organization and its
136. 16:39operations by way of a delegated authority from  the board. Um or sometimes it's expressed in
137. 16:45the organization's uh constitution. So um again  from that document this delegation of authority
138. 16:54generally includes responsibility for the  following. Now I've specifically put this in here
139. 17:01because I want to make it really clear that if  you look at the general roles and responsibility
140. 17:07of a CEO, there's absolutely no way the CEO is not  responsible for sustainability and sustainability
141. 17:15reporting. Um so listen to this. If you look  at the first one, managing the organization's
142. 17:22financial and other reporting mechanisms, the  control and monitoring systems to ensure that
143. 17:31these mechanisms and systems all capture relevant  material information um on a timely basis,
144. 17:38functionally effectively and um founded on  a sound basis of prudential risk management.
145. 17:47So, first of all, I want to apologize. I've been  talking and I thought everybody's been seeing my
146. 17:52slides, but apparently you're not. We've got some  serious IT issues today. Um, but let's keep going.
147. 18:00Um on the second bullet point um the CEO has to  ensure that the board is provided with sufficient
148. 18:10accurate information on a timely basis in regard  to the organization, its operations, business and
149. 18:17affairs and in particular with respect to  the organization's corporate performance,
150. 18:23financial conditions, operations and prospects. um  so as to reasonably position the board to fulfill
151. 18:30its governance responsibilities. Um so the CEO has  to assist the board to fulfill those governance
152. 18:38responsibilities and we know there's a lot of  governance responsibilities within AASB S2 and
153. 18:44you have to disclose those. The CEO in the third  bullet point also has to develop business plans,
154. 18:51budgets and strategies for consideration by the  board and to the extent approved by the board
155. 18:58implementing these plans, budgets and strategies.  Um, ensure the organizations are within the
156. 19:05parameters set. Um, look at the proposed  transactions, commitments or arrangements.
157. 19:11And then the second last bullet point identify  and management and and managing operational and
158. 19:18corporate risk for the organization. And then  finally implementing policies, processes and
159. 19:25codes of contact approved by the board. So you can  see that all of these things in some way captures
160. 19:34what we've been talking about around AASB S2 and  the responsibilities under AASB S2. So a most you
161. 19:42know the most important role of the board is to  appoint and work effectively with the CEO. Um and
162. 19:49in practice these two are really dependent on one  another and that's also true for sustainability
163. 19:56reporting. So boards rely on CEOs to provide input  into strategic development to implement strategy,
164. 20:05communicate the management's perspective and alert  the board to material issues that are relevant and
165. 20:11material to the organization and the CEO relies  on the board for delegation of authority for clear
166. 20:18direction, mentoring and support. Um so I think  it's when we designed this session we wanted to
167. 20:25focus on now with the pointy end of mandatory  sustainability reporting how CEOs and boards
168. 20:32have to work together to get to that final product  and that they really rely on each other. So that
169. 20:39is part A where we gave an overall introduction  into role of a board and the CEO and how they work
170. 20:47together. If we bring it back to part B and we  ask why mandatory sustainability reporting should
171. 20:55matter to CEOs and boards, um we know that in the  new annual report, we'll have an annual financial
172. 21:05report, the director's report, an auditor's  report, and an annual sustainability report.
173. 21:11So the annual sustainability report is going to  investors and financiers and users together with
174. 21:19financial information. So the importance of this  sustainability report has been elevated. Um this
175. 21:27is going in the public domain. It's going to be  subject to assurance. So clearly boards are saying
176. 21:35we've got a lot of processes around the financial  report. We put in a a lot of effort to approve
177. 21:41a financial report. We want to do a similar  process, a similar focus on this annual annual
178. 21:49sustainability report because our investors are  no longer just looking at the financial report.
179. 21:54They're looking at these two reports side by side.  Um, so that's important. If you look at AASB S2,
180. 22:03you'll see some very familiar terms on this slide.  And this is an overview of the composition of AASB
181. 22:11S2. So it's about governance and definitely that's  what the board and the CEO should be worried
182. 22:17about. What's our governance around sustainability  reporting and how does it fit into governance
183. 22:23across the whole business? Um what is our strategy  around climate related disclosures? Um so how have
184. 22:31we identified these risk and opportunities? What's  our climate resilience? What impact does it have
185. 22:36on our strategy, broader strategy, our business  model? Um what are the effects of all of this on
186. 22:43our financial statements? And if you look at risk  management, we know the board is responsible for
187. 22:49risk. We know the CEO has to report to board  on significant or material risk items. So what
188. 22:56are these processes processes again around risk  management around scenario analysis and how is
189. 23:04it integrated into the overall risk management  process and risk register. So sustainability
190. 23:11are not sitting in isolation. How do we bring  all of this together in a enterprisewide risk
191. 23:17register risk management framework? And then  finally, if you look at metrics and targets,
192. 23:24you know, what is our carbon footprint? How have  we have we set targets? How have we set it? Do
193. 23:30we want to stick to those targets? Um how are we  progressing against those targets? Will we need to
194. 23:36use carbon credits to get to our targets, etc.  So key words here, governance, strategy, risk,
195. 23:44targets, all the words that boards care about  and CEOs care about. Now I've talked about this
196. 23:52road map so many times. Um, and I'm I'm just  putting it here very briefly because it's a
197. 24:00starting point for where I want to go next. I want  to articulate why I believe there's an expectation
198. 24:07gap and that directors are quite exposed if they  don't understand the expectation gap and once they
199. 24:15understand the expectation gap the question is how  do they respond so I thought I'll put this road
200. 24:22map here as an example so this is a group one  road map for an entity with a 30 June year end
201. 24:30um and previously we've talked about there's  a lot of topics on the left hand side that
202. 24:36are included within 2 and then for every year I've  distinguished between when do we report it when do
203. 24:45we have to mandatory report on that topic um and  that is phased in so in the first year you don't
204. 24:51have to do scope three and you don't have to do  comparatives but in the second year you also have
205. 24:57to do scope three as well as comparatives for  all other aspects So there's a phasing around
206. 25:04sustainability reporting. There's also a phasing  around limited assurance over the three years and
207. 25:12finally in the fourth year we get to reasonable  assurance and normal audit. So in that first year
208. 25:18there's only limited assurance over three aspects  and then in the second and third year there's
209. 25:23limited assurance over absolutely everything and  finally uh around reasonable assurance. So there's
210. 25:31phasing of reporting, there's phasing of limited  assurance. In addition to that, there's phasing of
211. 25:39the respon not responsibilities, there's phasing  around the liability settings for directors around
212. 25:46mandatory sustainability reporting. Um so first of  all directors have to understand that their duties
213. 25:53in the corporations act has been amended and they  now also have the duty and the responsibility
214. 26:02um to prepare a mandatory sustainability  report and their director's duties include
215. 26:09uh care and diligence to consider material climate  risk. um they still have um duties and obligations
216. 26:18around misleading and deceptive conduct. They  still have general disclosure obligations,
217. 26:25maintenance of documents and information provided  to others and contraventions of the provisions
218. 26:32can attract a maximum maximum civil penalty for  an individual of 1.5 million. So what you can
219. 26:41see here is that whatever obligations they had  for financial reports and financial statements
220. 26:49are now extended to also cover that mandatory  sustainability report. Now I've mentioned phasing
221. 26:57um the director's declaration is being phased in.  So for the first 3 years, so from 1 January to 1
222. 27:07January 2025 to 1 January 2028, um the directors  have to sign a separate director's declaration as
223. 27:18to whether the entity has taken reasonable steps  to ensure that the contents of this mandatory
224. 27:25sustainability report are in accordance with  corporations act and also AASB S2. So there's
225. 27:32a phasing reasonable steps and only after that  period um the director's declaration will have
226. 27:40to say that the sustainability report actually  complies with the sustainability standards. Um
227. 27:47so that's the director's declaration. I think a  critical aspect is for directors to understand
228. 27:55um their liability. Um so there are modified  liability settings um where no legal action
229. 28:03may be brought in relation to certain types  of statements and they call in them protected
230. 28:09statements that are made within the sustainability  report or the accompanying audit report. So the
231. 28:16modified liability settings uh do not apply  to action taken by ASIC. So from day one a
232. 28:22um ASIC can take action. However, when  it comes to liability of directors,
233. 28:27there are three protected statements, there's the  scope 3 greenhouse gas emissions that's protected
234. 28:34scenario analysis and transition plan, but it's  only for reports prepared for financial years
235. 28:41commencing between 1 January 2025 and 31 December  2027. Um and then also it includes forward-looking
236. 28:52statements under the continuous disclosure  regime for financial statements prepared or
237. 28:59statements prepared during that period. So  there's a phasing. Now it's interesting to
238. 29:05note and this is not said here but interesting  to note if we've got protected statements for
239. 29:123 years it also means that all other statements  in the mandatory sustainability report doesn't
240. 29:20have modified liability and therefore directors  have full personal liability for all those other
241. 29:27statements. And that gave me the idea that there's  an expectation gap. And this is what I've tried to
242. 29:35illustrate on this slide. So I've used that road  map that I've shown a few slides ago for group
243. 29:42one entities um with 30 June year ends and I've  just cut out a piece of it. I've looked at the
244. 29:4930 June 2026 year end and I've said let's add an  additional column. We have the normal reporting
245. 29:58which is not scope three in the first year. We  have limited assurance which is only covering
246. 30:05three sections. And then I thought let's look  at director's liabilities. So do directors have
247. 30:13liability for these statements in 30 June 2026  year end? And I can see for governance they've got
248. 30:21liability for strategy. Um they've got liability.  They've got liability for risk management for
249. 30:29scope one and two emissions and for climate  related metrics and targets. The only thing
250. 30:34where they've got modified liability due to the  protected statement um is the climate resilience
251. 30:41scenario analysis transition plans and scope three  and and scope three is not even reported in that
252. 30:48particular year. So what is the expectation gap?  If we look at them, if you look at governance,
253. 30:57uh we're going to report it. there will be limited  assurance and the directors have liability. So I
254. 31:04don't see a gap. Um if you look at the strategy  and you look at those three sub paragraphs that
255. 31:10the auditors also um form a conclusion on um  directors are liable. There's no gap. However,
256. 31:19when you go at the third row where we look at  strategy, which includes risks and opportunities,
257. 31:26business model, value chain, strategy  and decision making, financial position,
258. 31:32um, financial performance and cash flows for all  of those aspects. So, that's all the disclosures
259. 31:40under paragraph 10 C to paragraph 21. I mean that  is the majority of the mandatory sustainability
260. 31:47report to be honest. All of those paragraphs  have to be um reported. There will be no
261. 31:55limited assurance over it but the directors have  unlimited liability. Um so I see a gap there. Um
262. 32:03and you can see obviously with climate resilience  transition plans there's no gap because at least
263. 32:10our directors have a a protection. um it will  be disclosed but they protect it. The other one
264. 32:17where there's a gap is with risk management um and  there's also a gap with climate related metrics
265. 32:24and targets. So I thought I wanted to flag with  board members today but also to executives and
266. 32:31finance teams are your directors aware of the fact  that all of this information will be disclosed?
267. 32:40Not all of it will be subject to limited assurance  and not all of it will be covered through modified
268. 32:48liability through protected statements. So  there's this gap where directors have to be
269. 32:54super careful of what they sign off on. Um  so really that's the purpose of this slide.
270. 33:02Um I think it's also important that ASIC has uh  pushed out their regulatory guide RG 280 in March
271. 33:12and they've specifically said that directors  should have an understanding about the entities
272. 33:19sustainability reporting obligations. They should  have an understanding of climate related risks or
273. 33:27opportunities that could reasonably be expected  to affect the entity's prospects. And those
274. 33:34prospects include access to cash flow, access to  finance, and cost of capital over short, medium,
275. 33:40and long term. And they will have to require or or  they will be required to establish or oversee the
276. 33:48establishment of systems that identify, assess  and monitor any material financial risk and
277. 33:55opportunities relating to climate including any  changes. So RG 28 makes that very clear. They also
278. 34:04said directors should require the establishment of  controls, policies, procedures that would oversee,
279. 34:14manage, prepare the sustainability report. Um, and  and they mentioned it could include identifying
280. 34:21relevant business uh units and employees that's  responsible for key inputs. It will it may also
281. 34:29include identifying how climate related financial  information is obtained. It's used to inform
282. 34:36the disclosures um and require the um them to  establish controls, policies and procedures. So
283. 34:44all the things that the directors have previously  developed and oversaw for management to develop
284. 34:51around financial reports they now also have to do  that for mandatory sustainability reporting. Um
285. 34:58and directors should apply a critical lens to the  disclosures proposed in the sustainability report.
286. 35:07So for example, ASIC is saying questioning the  appropriateness or completeness of methodologies.
287. 35:15Um critically consider the inputs and the  assumptions to support the disclosures. Critically
288. 35:24assess the extent that there may be any material  emissions. Um having regard to their knowledge
289. 35:30of the business. um critical again perspect  perspective over whether the disclosures have
290. 35:39been properly characterized and whether additional  information should be disclosed. So a big focus on
291. 35:47directors to look at these um disclosures and  ask some questions. RG 28 specifically says
292. 35:56directors can rely on experts. So in carrying  out these responsibilities, directors may rely
293. 36:04on the special knowledge or expertise of others in  relation to sustainability reporting. So it could
294. 36:12be experts, advisers and other suitably qualified  people and those people could be internal to the
295. 36:18business or external. Um so they don't have to  be experts on everything the directors but they
296. 36:24can rely on other people. Now the most important  part is actually the last sentence on this slide
297. 36:31or the last bullet point. The fact that directors  can rely on experts does not absolve the directors
298. 36:40from making an independent assessment of the  information or advice provided. They must still
299. 36:48use their own skills and judgment when they look  at these disclosures. Now again I want to come
300. 36:56back that's a big statement. Let's come back to  an example of a road map that we've developed over
301. 37:04the years. So for example for a group one entity  we would have said for mandatory sustainability
302. 37:10reporting we had our two project streams one on  carbon one on AASB S2. For each of the streams
303. 37:20we have five projects that altogether we have 10  projects. So these are the projects that in our
304. 37:27view businesses should conduct to be ready for  mandatory sustainability reporting. And now the
305. 37:36question is bringing it back to the directors. How  do the directors ensure that all of these projects
306. 37:44ran ran successfully? How do they get around their  heads around the deliverables from these projects
307. 37:53to assess whether they can rely on them for the  disclosures? So there's 10 significant projects
308. 38:01running in the business in order to get ready  for mandatory sustainability reporting. Directors
309. 38:08should consider those projects. So one, did we  run the project as a business? Did we run it
310. 38:14successfully? What does the outcomes look like? Do  we agree with that those outcomes? So in practice,
311. 38:20what Claudia and I have seen is often we  run these two project streams each having
312. 38:27five projects at the same time. Um we just  don't have the luxury of doing the one and
313. 38:33then the other. So if you look at project stream  one, we look at that boundary setting policies,
314. 38:38the basis of prep, the measurement of scope one  and two, scope three next year and we do target
315. 38:46setting whilst at the same time we're looking at  governance, risk assessment, scenario analysis,
316. 38:53modeling and finally preparing the report. Um  so there's a lot of things happening at the
317. 39:00same time in the business. Now, previously and  in particular in our December webinar last year,
318. 39:09we talked about auditor expectations regarding  mandatory sustainability reporting. So, I went
319. 39:16back to that December webinar and I picked up a  few screenshots of the things we talked about. So,
320. 39:23we talked about um are the responsibilities of  the board and management clearly defined? Do we
321. 39:29have the governance in place? Do we have all the  data on climate risk and opportunities? We said
322. 39:35not documented, not done. You know, these are the  things that at a a management le level we should
323. 39:43do and auditors will ask for it. On the right hand  side, I've got some audit expectations on carbon
324. 39:50accounting. I have some discussion around what  about the other information in this report. So,
325. 39:56these are just snapshots from that December  webinar. Now we know we know what management
326. 40:05should be doing all these projects. We know  what the auditors are look looking at. What
327. 40:11about the board? You know, so under the corpse  act and AASB S2 boards are required to oversee
328. 40:18all of this. Um and high-erforming boards are  expected to set the tone from the top, embed
329. 40:26sustainability into their culture, monitor and  oversee these risks, especially around climate.
330. 40:33They have to hold management accountable. And very  important, if they have to do all these things,
331. 40:42they need a grasp of climate literacy. They need  a grasp on climate literacy which often is a bit
332. 40:50of a shortcoming. So directors and CEOs must now  understand um AASB S2 scope and obligations at a
333. 41:00broad level. They have to be able to recognize  data and assurance requirements to make sure
334. 41:07that all stuff we put in front of them are  actually audit ready and they have to their
335. 41:14skills through targeted and engaging um external  expertise. So some of the practical challenges we
336. 41:24are seeing is that boards often face skills gap  in climate and ESG. So it's important to either
337. 41:32recruit board members that have those skills or  upskill existing board members. Um that we have
338. 41:39to make sure that they consider how sustainability  has impacted financial forecasts, risk registers,
339. 41:47capital planning, disclosures and very important  how do we get that crossf functional collaboration
340. 41:54um and there could be new processes that's  required. Um so if you look at these um
341. 42:01sustainability governance it's really important  that we look at structure our ESG governance with
342. 42:09defined accountabilities um let's look at  education um let's integrate sustainability
343. 42:16into KPIs and let's have some scrutinies some  scrutiny um you know there will be uh scrutiny
344. 42:24from employees and customers as well Um so really  important um that there's clear accountability
345. 42:32between the board and executive that the scenario  analysis is co-owned um that there are regular
346. 42:39risk updates to the board included in board  um packs um and that board discussions move
347. 42:46from compliance to opportunity recognition. Um  I want to hand over now for the next few slides
348. 42:54to Claudia because I've asked Claudia to think  critically um all the things that we are currently
349. 43:02doing with management to help a business getting  ready or assurance ready and to prepare that draft
350. 43:08sustainability report and we're doing an a huge  work across all those projects. What did Claude
351. 43:16and I think board management regarding mandatory  sustainability reporting specifically knowing
352. 43:25there's a lot of things that the director have to  sign off on that the auditor will not um express
353. 43:34a conclusion on. So there's that gap. So how do  directors fill the gap? So Claudia, over to you.
354. 43:43Thanks Alleta. Um I think that introduction that  you've provided to pro go back to what is the
355. 43:51role of the board is really critical because it  really sets that expectation and I think that as
356. 43:58managers, group financial controllers, everyone  on this on this webinar um a recommendation that
357. 44:04we have is to take that slide that demonstrates  what the gap is and to make sure that that is
358. 44:08communicated internally because that's going to be  critical to making sure that the board um becomes
359. 44:14comes and remains engaged in this process over  time. So in terms of what that next step is, what
360. 44:21should that board then come to management with?  What are the questions that they should be asking?
361. 44:26Um it does come down to the fact that they aren't  expected, you know, no director is now expected
362. 44:32to become a client climate scientist, but they  are expected to apply their skill set that was
363. 44:37identified as part of the succession planning and  selection of getting them onto the board in the
364. 44:42first place. using that skill set and expertise  that they've developed over time to interrogate
365. 44:48the results that management produced for them  to ultimately collect into this sustainability
366. 44:53report. And so these questions are listed here on  on this in the next slide um as potentially what
367. 45:01you can ask during the execution of this process  yourself, but what you should expect your board of
368. 45:08directors to be asking you when they interrogate  the work that's been performed. So from a
369. 45:13governance perspective, starting with the first  pillar of reporting, how have your governance
370. 45:18processes been affected um or updated to make  sure that sustainability considerations are
371. 45:24embedded in your governance processes. So not just  your decision- making but your oversight thereof
372. 45:30as well, not not just at the executive level, but  feeding up all the way to the board of directors.
373. 45:36So if there are documented processes, have the  appropriate updates been included in these and
374. 45:42how often are these matters being communicated  within the business? So not just within management
375. 45:50groups, but also up to the board itself, whether  that's the monthly board meeting, perhaps there's
376. 45:55a quarterly agenda item, um, and if the board only  meets half yearly, perhaps it is appropriate to
377. 46:00make sure that it's tabled every single time.  So ultimately who is responsible and if that's
378. 46:06the board making sure that that communication  is really robust and and occurs regularly. So
379. 46:13establishing these modes of of ways of working  is really really important to manage expectations
380. 46:20um and to make sure that the board feels supported  to sign off on these disclosures. Ultimately it
381. 46:25is really important to be asking the questions  how often will the board be updated on climate
382. 46:30related issues and then when you move on from the  governance to the strategy as well as the metrics
383. 46:36and targets um sections of the report that's  when you start thinking about the implication of
384. 46:43sustainability and climate specific matters on the  business. So how and to what extent has management
385. 46:50defined the business model? Have we captured all  of our operations? Is there concentration in some
386. 46:56of these operations that needs to be explored  more than others? And then once we've explored
387. 47:01the business model, how and to what extent has  management to find the the value chain? So this is
388. 47:07where things can get a little bit more tricky. We  might need to do a little bit more estimation or
389. 47:13um consider reasonable assumptions when  determining what disclosures might need to
390. 47:18look like. But the value chain and the extent of  the value chain is really important to determining
391. 47:24what climate risk really looks like and what  climate opportunities also look like for your
392. 47:29business. So when you're going through that, what  was the actual process that management followed?
393. 47:36How robust was that? What were the sources?  How credible are those sources? What are the
394. 47:41reasonable assumptions that were applied? Do we  think they're reasonable? All of these questions
395. 47:47that um internally you're probably being asked by  your CFO on a monthly basis when you're submitting
396. 47:53your monthly management packs. But these are  also questions at the board level that we should
397. 47:58expect your directors to be asking especially  in the first year of reporting when a lot of
398. 48:04this information is going to be presented to the  market for the very first time. So having robust
399. 48:11processes in place um and then making sure that we  have a really good process in place for selecting
400. 48:18the disclosures themselves um understanding  what's gone into that process is going to be
401. 48:24really important to making sure that the directors  have comfort around what's ultimately disclosed.
402. 48:30So which of the risks and opportunities that  management has identified are actually going to
403. 48:37be disclosed and why? That critical question is  really why. How have we come to that conclusion
404. 48:45and what are the considerations that we've input  into that decision making process? Because even
405. 48:50though it is drafting reporting disclosures, there  are a series of critical decisions that need to be
406. 48:57made and those the leaders in our business need to  be able to defend those decisions to the board of
407. 49:03director to the board of directors ultimately. So  once we've done our climate risk and opportunity
408. 49:11assessment, there is still the question of climate  scenario analysis so that we can test our business
409. 49:16resilience. So what process and methodology is  being followed to conduct that scenario analysis
410. 49:23when we're preparing our scenario narratives? What  is the narrative that was developed for both a low
411. 49:29and high warming scenario and why? What are the  high impact high uncertainty drivers that we're
412. 49:36using and why? Again the theme is why why why?  because we need to make sure that the position
413. 49:44that we've come to is defendable and that  the directors ultimately have comfort. So
414. 49:50what lessons can we learn from the scenario  analysis? And this links into the strategic
415. 49:55role of the board in that if we've uncovered  something that is forward-looking and it can
416. 50:01impact the business's future, it's in the board's  interest to know exactly what that is so that they
417. 50:07can consider the appropriate way of planning for  that and what the appetite is of the business to
418. 50:13either manage the risk or to address the strategic  outcomes that could flow from that opportunity.
419. 50:20So it's not just linked to a compliance  questioning. There is a strategic aspect
420. 50:24to what the board can learn from this process as  well. So making sure that the board is clued into
421. 50:31that aspect of it as well. So linking to the  next question, should we change our strategy
422. 50:37in response to the outcomes that we've learned? Um  and sometimes there may be an appetite to do that.
423. 50:44Sometimes we don't have enough data or um there  isn't enough certainty around the outcomes to
424. 50:50be able to make a decision. But by identifying  that today and by applying continuous improvement
425. 50:57principles, the board can stay informed over  time. And that's exactly what we're looking to
426. 51:04achieve here. So then when we talk about financial  outcomes, how did management go about quantifying?
427. 51:11Um and to build on that, if we haven't quantified  things, why not? Um so what are the impacts on the
428. 51:19business? Um what do we anticipate the impacts to  be? What are the metrics that are used and do they
429. 51:26align with the key metrics that we're currently  using to evaluate business performance? If there
430. 51:31is a misalignment there, that's really critical  information for the board to consider around how
431. 51:37the strategy and effectiveness of the strategy is  measured moving forward and how that might need
432. 51:44to change to stay relevant. So moving on from the  um strategic pillar of reporting which is where
433. 51:51there's a lot of meat but in the greenhouse gas  emissions calculation and measurement there are
434. 51:58a lot of data and inputs um that may need to be  estimated or assumed. So when we when we present
435. 52:09a carbon footprint to the board of directors,  it is appropriate for them to interrogate how
436. 52:14did we come to the position that we've come  to. And the fourth question down is critical.
437. 52:20What is management's confidence level on the GHG  emissions that have been presented and why? what
438. 52:28kind of evaluation has gone into the data quality  and how do we know that it's not going to change
439. 52:34significantly over the next reporting periods. So  if we go down how can management provide the board
440. 52:41with sufficient confidence that the measurement  undertaken is sufficiently accurate and reliable
441. 52:47because eventually we want to be set up for  success when we do set our targets. So what
442. 52:54are the key sources of uncertainty? um how can we  continuously improve our measurement process um
443. 53:00and moving forward what ongoing review so moving  back to the processes what's in place to ensure
444. 53:08that changes in the business or in the value chain  effectively trigger updates to what's going on so
445. 53:15that these can also be monitored and managed. Um  so finally what is management's recommendation on
446. 53:22setting emissions reduction targets? So there are  a lot of questions that we um you know in doing
447. 53:28our work we receive from management that we also  need to be able to discuss but from a client's
448. 53:35perspect from a compliance perspective that is  and we expect that there will be a level of focus
449. 53:40on the compliance perspective especially in the  first year of reporting. However that doesn't mean
450. 53:46that it is mutually exclusive from the strategic  benefit that can arise from asking some of these
451. 53:51questions as well. And so it's really important to  make sure that there is a balanced conversation.
452. 53:57And often when the board of directors meets, it  is the combination of skills and expertise that
453. 54:03these people have amassed over their careers that  allows for that balanced conversation to happen.
454. 54:09So the importance of these questions shouldn't be  underestimated. But if you do need some support
455. 54:14in getting the board on board, perhaps these  are some slides that you can present to start
456. 54:18that really robust conversation. Alleta, do you  have anything to add? No, Claudia, thank you very
457. 54:25much for that. That was very comprehensive and  I value um your contributions. So, Claudia is
458. 54:31working very closely with so many of our group  one clients with their auditors with executives
459. 54:38and now also helping executives to be to get ready  for not only conversation with the auditors but
460. 54:44conversations with the board. So, Claudia, thank  you very much for sharing those really practical
461. 54:49insights. really appreciate it. I know we've run  over time so we'll wrap it up around part C and
462. 54:57that is why broad sustainability and ESG should  matter to CEOs. So you know we've just focused
463. 55:05on sustainability reporting around climate in part  B. Um but broadly there's there's so much more to
464. 55:12sustainability. Climate change is just one thing.  Um there's all these under one other wonderful
465. 55:18things that boards and CEOs should care about and  often already care about because they already look
466. 55:26at first nation engagement, they look at health  and safety, they look at customer satisfaction,
467. 55:32um look at skills matrix, so many other things.  So broadly, why would boards care about this?
468. 55:39It's not mandatory to report all of this. Only  mandatory to report climate. Why would boards and
469. 55:46and and and CEOs care? And we know, as we've often  said, it's all about access. Access to capital,
470. 55:53debt or equity, access to markets or customers,  and access to people to work in the business.
471. 55:59Um because ultimately the board wants to  generate long-term value for stakeholders,
472. 56:05and the CEO is obviously helping them with that.  um the 2025 BDO outlook survey in in the US came
473. 56:14up with a top 10 benefits of broad sustainability  and every time I look at this list I'm just amazed
474. 56:20at all these benefits um you know increased  innovation and that's what we need especially
475. 56:26in Australia we need innovation um new business  opportunities we need increases in revenue we
476. 56:33see access to favorable financing we see improved  risk management, improve supply chain resilience,
477. 56:41broader risk considerations, cost savings, etc.  So, there's so many benefits that a board and a
478. 56:48CEO would be interested in. Um, last year we also  did a global survey. Um, and one of the things
479. 56:56and and there was also a particular focus on Asia  pack. Um, so we've said that sustainability isn't
480. 57:04just a checkbox anymore. With mandatory climate  reporting now in play, Australian businesses
481. 57:11are rethinking risk, strategy, and what it means  to lead responsibly to unpack all those broader
482. 57:20sustainability benefits. Um, so I think that's  really important that boards and CEOs just don't
483. 57:27keep their head down on mandatory reporting,  but ultimately lift up their heads and look at
484. 57:32broad sustainability initiatives, priorities,  potential benefits. Um, it's really important
485. 57:39that stakeholder expectations are redefining  governance across broad sustainability. Um,
486. 57:47it's not just about regulatory shifts. We've seen  investor activism. Um we've seen scrutiny from
487. 57:55employees and um customers. Um we know that we now  want um transparent reporting not just on climate
488. 58:05on everything. Um we want meaningful climate  disclosures and also assurance quality data. And
489. 58:13then also, you know, if we are falling short on  any of these, there could be uh that we alienate
490. 58:21our stakeholders. We've got increased regulatory  investigation. We could have loss of customers.
491. 58:28Um we can have missed capital opportunities.  Um and there could be exposure to climate and
492. 58:34other impacts. So stakeholder expectations are  really redefining governance and what boards and
493. 58:42CEOs should be looking at. Um it's important  to align sustainability with your corporate
494. 58:48strategy. Um so it's important that sustainability  influence capital investments, market positioning,
495. 58:56supply chain resilience, workforce capability. Um,  and we often hear and there there's been a number
496. 59:04of studies that say companies with sustainability  strategies are more resilient to regulatory and
497. 59:12stakehold stakeholder um scrutiny. So if we look  at the CEO's role in accelerating this momentum
498. 59:21around sustainability, CEOs are expected to lead  organizational alignment. Um not delegate ESG
499. 59:30downwards. CEOs have to lead from the top. Um CEOs  must ensure that these ESG considerations shape
500. 59:39capital investment, supply chain expectation,  workforce capability, competitive strategy
501. 59:46and CEOs who drive sustainability and ESG  early on reduce regulatory disruption later.
502. 59:56Um I think why is it important to act now and  this is for the board it's for the for the
503. 1:00:03CEO. Early movers secure investor confidence and  customer loyalty. Um strong ESG governance reduces
504. 1:00:13compliance stress later and mature sustainability  capability drives value not burden. Um so very
505. 1:00:24important that we look at decisive leadership from  boards and executives. Um sustainability um I know
506. 1:00:32we're all busy with mandatory sustainability  reporting. I I know and it's important but
507. 1:00:38sustainability is now a strategic financial and  governance priority. Um so boards must really
508. 1:00:46shift from just high level oversight to how do we  activate embed in the business sustainability not
509. 1:00:52just climate across broad sustainability. Um  and organizations that lead on sustainability
510. 1:00:59will set market expectations and not chase  them. Um and we have developed a checklist
511. 1:01:05to get entities activated on this sustainability  strategy. And again, Claudia and I and our team
512. 1:01:14have done quite a bit of work with organizations  thinking what do you already have in place? Um,
513. 1:01:21what do your stakeholders want? Do stakeholder  engagement? Work out how you fill the gaps. Um,
514. 1:01:28how do you measure what your stakeholders want to  see and how do you voluntary report on that to to
515. 1:01:35keep stakeholder confidence and how do you improve  on that over time? Um so we want organizations to
516. 1:01:43move from awareness to activation to leadership.  Um we want to provide boards with a structure on
517. 1:01:50how do you prioritize all these things you could  be chasing and could be doing. Um and I think it
518. 1:01:57also bridges that mandatory that gap um between  mandatory reporting requirements and broader ESG
519. 1:02:06strategy. Um finally how BDO can help. We look  after carbon accounting. We do sustainability
520. 1:02:14reporting but we also do sustainability strategy.  And finally as you all know we do sustainability
521. 1:02:21assurance. Um now I've often talked about carbon  um measurement. I've talked about sustainability
522. 1:02:27reporting whether it's mandatory or voluntary.  But today we wanted to highlight some of the
523. 1:02:33sustainability strategy um initiatives that  boards and CEOs should embrace in addition to
524. 1:02:41the wonderful work around sustainability reporting  and carbon accounting. And then finally of course
525. 1:02:47we always need um assurance. If you are looking  for sustainability report um specialist at BDO,
526. 1:02:55you can contact u me or my team um Kevin or Tom or  Ashley. Um and you can also register obviously for
527. 1:03:04the webinars or for our monthly newsletters. Um  corporate reporting insights was published last
528. 1:03:11Thursday and sustainability news will be published  tomorrow. Finally, Claudia, I want to thank you
529. 1:03:19for joining me today for this webinar. It was one  of those baptism of fire webinars where technology
530. 1:03:26were throwing all kinds of issues at you and  me today. So, thank you for staying calm and
531. 1:03:32helping me through it. To our attendees,  uh we apologize for all the IT glitches,
532. 1:03:37but I hope you still got some valuable content  out of the day. Um so, thank you again to Claudia
533. 1:03:44sharing her expertise. Thank you for attending  everybody and we'll speak again next month.