2. Effects of New Financial Reporting Standards

2.1 Financial Reporting Standards Applied for the First Time in the Reporting Period

Initial application of the standards listed in the table had no or no material impact on the presentation of the net assets, financial position and results of operations of the Covestro Group.

The amendments to IAS 7 (Statement of Cash Flows) and IFRS 7 (Financial Instruments: Disclosures) are intended to increase transparency with regard to supplier finance arrangements and their impact on a company’s liabilities, cash flows, and liquidity risk. The existing disclosure requirements have been expanded to require a company to provide qualitative and quantitative information, in particular about payment term arrangements with suppliers. In this respect, Covestro was subject to additional disclosure requirements (see Note 24.1.).

2.2 Published Financial Reporting Standards that have not yet been Applied

The IASB issued the following standards and amendments to standards which have already been adopted by the European Union (EU) but are not mandatory for financial statements 2024. The Covestro Group has not made use of the option to apply these before their effective date.

The effects of the initial application of the aforementioned financial reporting standards are currently being reviewed. At the time the financial statements were prepared, no, or no material, impact on the presentation of the net assets, financial position, and results of operations of the Covestro Group was expected.

The application of the following other standards and amendments to standards issued by the IASB is conditional upon their endorsement by the EU. The effective date for the standards is assumed to be the effective date designated by the IASB.

The effects of the initial application of the aforementioned financial reporting standards are currently being reviewed. At the time the financial statements were prepared, no, or no material, impact on the presentation of the net assets, financial position, and results of operations of the Covestro Group was expected.

The IASB issued final amendments to IFRS 9 (Financial Instruments) and IFRS 7 (Financial Instruments: Disclosures) entitled “Contracts Referencing Nature-dependent Electricity” on December 18, 2024. These amendments are aimed at adapting the IFRS standards to the increasing use by companies of electricity from renewable sources, whose timing and volume of generation cannot be forecast or controlled. A key aspect of the amendments concerns the application of the “own-use exemption” to nature-dependent power purchase agreements. Under the amendment, this exemption can be applied when a company acts as a “net purchaser” of electricity, meaning that it purchases sufficient electricity to offset sales of unused electricity in the same market. The assessment period for this should not be more than 12 months. In addition, the hedge accounting requirements have been amended to permit a company using a contract for nature-dependent renewable electricity with specified characteristics as a hedging instrument. Here it will be possible in future to designate a variable volume of forecast electricity transactions as the hedged item in a cash flow hedge and to measure the hedged item using the same volume assumptions as those used for the hedging instrument. The amendments to IFRS 7 require additional disclosures on significant contractual terms. The new requirements are effective for fiscal years beginning on or after January 1, 2026, subject to endorsement by the EU.

IFRS 18 (Presentation and Disclosure in Financial Statements) will replace the existing requirements of IAS 1 (Presentation of Financial Statements) and aims to enhance the comparability and relevance of financial information. Covestro’s management is currently analyzing the impact of the new standard on the consolidated financial statements and has already prepared initial estimates. The new standard will not impact net income, but it will have significant consequences for the allocation of income and expense items in the income statement and therefore affect the operating result. Depending on the underlying transaction, foreign exchange differences previously recognized in the financial result will in the future be recognized in the operating result or in the “investing” category. For derivatives, IFRS 18 requires gains or losses to be recognized in the category affected by the hedged risk, and potential changes in this area for Covestro are still being evaluated. No material changes in the content of the notes disclosures are expected, but the grouping of information could change because of new aggregation and disaggregation principles. In addition, new requirements are being introduced, such as the disaggregation of certain types of expenses in the “operating” category by function and a reconciliation in the year of initial application. The Group plans to apply the new standard from January 1, 2027, subject to EU endorsement.