+Joint Guidelines on integrating ESG in supervisory stress test (JC 2025 78)
---+3. Guidelines
------+Status of these Joint Guidelines
---------+10. This document contains Joint Guidelines issued pursuant to Articles 16 and 56 of Regulation …
---------+11. Joint Guidelines set out the ESAs’ view of appropriate supervisory practices within the …
------+Reporting Requirements
---------+12. In accordance with Article 16(3) of the ESAs’ Regulations, competent authorities must notify …
---------+13. Notifications will be published on the ESAs’ websites.
------+Title I - Subject matter, scope and definitions
---------+14. These Joint Guidelines aim to clarify how competent authorities should consistently integrate …
---------+15. These Joint Guidelines are addressed to competent authorities.
---------+16. Competent authorities should apply these Joint Guidelines when performing supervisory stress …
---------+17. Unless otherwise specified, the terms used in these Joint Guidelines have the same meaning as …
---------+18. In addition, for the purposes of these Joint Guidelines, the following definitions apply: 5 i. …
------+Title II- Requirements regarding consistency, long-term considerations and common standards for assessment methodologies in stress testing of ESG risks
------+Objectives
---------+19. Pursuant to the sectoral legislation, competent authorities should implement these Joint …
---------+20. Competent authorities should consider all ESG risks and their potential evolution when …
---------+21. Competent authorities should adopt a risk-based approach, starting with a materiality …
---------+22. As part of the materiality assessment, competent authorities should identify which ESG risks …
---------+23. Competent authorities should consider using clear qualitative and/or quantitative criteria …
---------+24. Competent authorities are encouraged to continue their efforts and research to gradually extend …
---------+25. This gradual roll-out should be accompanied by continuous methodological refinement, capacity …
---------+26. Competent authorities should aim to fully integrate ESG factors into overall stress testing …
---------+27. Competent authorities should review and reconsider as appropriate the types of ESG risks …
---------+28. Although these Joint Guidelines do not cover system-wide financial sector stress testing …
---------+29. Competent authorities should ensure, to the extent possible, that ESG stress tests account for …
------+Principles and methodological considerations
---------+30. When determining the principles and methodological considerations, competent authorities should …
---------+31. Competent authorities should clearly define the coverage in terms of portfolios, sectors …
---------+32. For cross-border financial groups, competent authorities should ensure that all relevant …
---------+33. Based on the objective and the time horizon involved, competent authorities should ensure that …
---------+34. The choice of the time horizon should be aligned with the intended objective of the exercise: ▪ …
---------+35. Competent authorities should identify and select stress test scenarios based on the objectives …
---------+36. Wherever possible, competent authorities should consider the integration of compound risks …
---------+37. With the aim of integrating material ESG risks into short-term stress testing exercises …
---------+38. When performing longer-term ESG stress testing, competent authorities should consider several …
---------+39. Depending on the sophistication of the approach, scenarios may take the form of simple …
---------+40. Competent authorities may decide to apply the same scenarios to all financial entities for …
---------+41. Competent authorities should assess the merits of a top-down versus bottom-up approach …
---------+42. When using a bottom-up approach, competent authorities should establish clear methodological …
---------+43. A hybrid approach could be considered, leveraging the strengths of both methodologies. …
---------+44. In deciding on the level of granularity, competent authorities should strike an appropriate …
---------+45. At a minimum, competent authorities should consider the following granularity dimensions: a. …
---------+46. Competent authorities should decide on the appropriate level of data granularity depending on …
---------+47. For the analysis of funds, competent authorities may consider, when possible and consistent …
---------+48. For ESG stress tests, competent authorities should start by using a static balance sheet …
---------+49. For exercises with medium to long term time horizons, a dynamic balance sheet (with or without …
---------+50. Given the uncertainties surrounding transition pathways, policy developments, and market …
---------+51. Any management actions recognised by financial entities should be assessed based on their …
---------+52. Competent authorities should define the appropriate sample of financial entities to participate …
---------+53. Competent authorities should also consider conducting targeted exercises on specific subsets of …
---------+54. Competent authorities should apply proportionality principles, allowing for methodological …
---------+55. Given the early-stage of development of ESG stress test modelling and data availability …
---------+56. Competent authorities should recognise that all models have inherent limitations, and this …
------+Organisational and governance arrangements
---------+57. Competent authorities should ensure that sufficient and adequate human and material resources …
---------+58. Competent authorities should have data management and collection capabilities that support …
---------+59. Competent authorities should set appropriate timelines for conducting ESG stress tests and …
---------+60. The process should be structured to facilitate efficient analysis, consistent communication of …
---------+61. For top-down exercises, competent authorities should rely, as much as possible, on regulatory …
---------+62. Where data gaps exist, competent authorities should promote the use of reasonable proxies …
---------+63. A rigorous quality assurance process should be implemented to verify the accuracy, consistency …
---------+64. Competent authorities should maintain effective and structured dialogue with financial entities …
---------+65. Where relevant and possible, competent authorities should coordinate across jurisdictions to …
---------+66. When relevant, system-wide coordination should also be pursued to ensure that ESG stress tests …
---------+67. ESG stress test results should be, to the extent possible, integrated into the broader …
---------+68. The results should also guide supervisory follow-up measures and policy recommendations where …
---------+69. Publication of results should be in line with relevant sectoral regulation and supervisory …
---------+70. Given the evolving nature of ESG risks and stress testing methodologies, competent authorities …
------+Title III- Implementation
---------+71. These Joint Guidelines apply from 1 January 2027 15
 English - European Union - Financial Industry -

Joint Guidelines on integrating ESG in supervisory stress test (JC 2025 78)

Joint Guidelines on integrating ESG in supervisory stress test (JC 2025 78)

https://www.eba.europa.eu/activities/single-rulebook/regulatory-activities/sustainable-finance/joint-guidelines-integrating-esg-supervisory-stress-test – PDF

1. Overview

,
3. Guidelines

3. Guidelines

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

Requirements

3. Related Standards

Standards
  • EBA - Published by the European Banking Authority at https://www.eba.europa.eu/