Corporate Carbon Transparency in the EU: The Transformative Role of IFRS Sustainability Standards in Auditing and Reporting (2025)

Abstract

 This study investigates the transformative impact of IFRS Sustainability Disclosure Standards (S1/S2) on corporate carbon transparency within the European Union's evolving regulatory framework. Against the backdrop of the Corporate Sustainability Reporting Directive (CSRD), we analyze the effectiveness of these standards in addressing critical gaps in carbon disclosure assurance, particularly for Scope 3 emissions. Employing a mixed-methods approach, we combine quantitative analysis of 50 EU firms' sustainability reports (2024-2025) with qualitative insights from 22 key stakeholders, including auditors, policymakers, and corporate leaders. Our findings reveal significant sectoral disparities in compliance, with only 28% of firms achieving full Scope 3 reporting and high-emission sectors underreporting by 25% (p < 0.1). The research demonstrates the crucial role of audit quality, as Big 4-audited reports showed 38% higher reliability             (p < 0.01), despite 35% of auditors lacking adequate IFRS S2 expertise. Notably, our analysis shows CSRD's policy bundling approach (combining reporting mandates with assurance requirements) proved 2.6 times more effective than standalone carbon pricing measures (β = 0.47 vs. 0.18). These results underscore the need for sector-specific materiality thresholds, enhanced auditor training, and greater global harmonization of sustainability standards to support the EU's transition to net-zero emissions by 2050. The study contributes to ongoing debates about environmental accountability while offering practical insights for policymakers, corporations, and standard-setters navigating the complexities of carbon transparency.