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.

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 2025. The Covestro Group has not made use of the option to apply these before their effective date.

The IASB published IFRS⁠ ⁠18 (Presentation and Disclosure in Financial Statements) in April⁠ ⁠2024. This replaces the existing requirements of IAS⁠ ⁠1 (Presentation of Financial Statements) and aims to enhance the comparability and relevance of financial information. IFRS⁠ ⁠18 introduces new requirements for presentation in the income statement, including specific totals and subtotals. In addition, companies must classify all income and expenses in the income statement into one of five categories: operating activities, investing activities, financing activities, income taxes, and discontinued operations. Covestro’s management is currently analyzing the impact of the new standard on the consolidated financial statements and has already prepared initial estimates. Although the new standard will not impact net income, it will have significant consequences for the allocation of income and expense items in the income statement and hence 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, in the “investing” category, or in the “financing” category. For derivatives, IFRS⁠ ⁠18 stipulates that gains or losses must be reported in the category affected by the hedged risk. No significant changes are expected in the notes disclosures. However, new requirements are being introduced, such as the classification of certain types of expenses in the operating category by function for users of the cost of sales (function of expense) method. Additionally, a reconciliation will be required in the year of initial application.

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 Covestro Group does not expect the amendments to materially affect its financial statements.

The effects of the initial application of the other 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.

Based on current estimates, the new or amended IFRS accounting standards listed in the table will have no or no significant impact on the presentation of the Covestro Group’s net assets, financial position, and results of operations.