Select set up with Computer instead of WiFi and don't use the Kobo Desktop. Instead copy the unzipped firmware update to .kobo folder. Make sure the Kobo desktop SW is not running.
https://pgaskin.net/KoboStuff/kobofirmware.html
It can't connect via WiFI because the website certificate is out of date.
You can only connect via PC if you pick that instead of WiFi at that stage of the Factory Reset.