How does climate change affect the financial statements? The case of the aviation industry, Airbus SE and The Boeing Company

Abstract Climate change has become a critical environmental issue that has gained a lot of attention in the last few years. The need for this issue to be addressed is becoming more immediate day by day as this issue does not concern only the meteorologists and environmentalists but has also become a critical risk factor for the business world. Floods, tsunamis, hurricanes, and high and freezing temperatures, among many others, have led to the loss or damage of companies' assets together with the loss of customers. Nowadays, managers and corporate strategic decision makers are bringing the focus to understand the impact of these changes and undertake actions to report these effects on the financial statements of the companies. This study aims to investigate how climate change impacts the disclosures on companies' balance sheets. In this thesis, the qualitative methodology and information made public by competent institutions is used. Moreover, it considers the ongoing work by the IFRS Institute, the European Securities and Markets Authority (ESMA), the International Accounting Standards Board (IASB), and the US Securities and Exchange Commission (SEC), however, it does not include sustainability standards nor Environmental, Social, Governance (ESG) reports, except when it is relevant and connected with the subject. Climate change can affect accounting, as well as the relevance of the information disclosed in financial statements. The impact of climate-related risks should be disclosed in the financial statement to accommodate the criteria set out by the IFRS accounting standard. Only in this case will the economic events affected by climate change be carried out in the assets, liabilities, profit and loss, income, or expense results. Throughout, this paper investigates the main balance sheet accounts that are affected by the impact of climate change. This account includes tangible assets, intangible assets, inventories, receivables, other assets, cash-related assets, liabilities, deferred and accruals. The profit and loss (P&L statement) are also affected by climate change through insurance costs, operating expenses, operating incomes, amortization and depreciation, extraordinary income and extraordinary expenses, disposal cost, and interest. As it is essential for companies to have a better understanding of their material issues, among many other reasons, investors too require this data. They have been specially classified as being used during their decision-making process but not being sufficiently disclosed in annual reports. Additionally, external factors such as the industry in which the companies operate may make climate change risk material, and the disclosure when preparing their financial statements becomes crucial regardless of the amount. The study stresses in more detail the impact that climate change has on the aviation industry. The aviation industry is one of the most affected sectors because it is characterized as highly exposed and sensitive regarding climate change regulation and future development. More importantly, taking into consideration that the process for the design and manufacture of the planes is years long, they need to have a fuller vision of the long-term effects of climate change. This scientific context follows the analysis of the two leaders in this industry, the American company Boeing (which complies with the US GAP standards) and the European company Airbus (which complies with IFRS accounting standards). The information was gleaned from their financial statements from 2021 through 2023. Keywords Climate change, information disclosure, financial statements, accounting standards, related risks, aviation industry, Boing, Airbus