20. Competent authorities should consider all ESG risks and their potential evolution when …

Competent authorities should consider all ESG risks and their potential evolution when designing their framework for supervisory stress testing and keep under review the relevance of ESG risks to such framework, especially while progressing towards gradual extension of the coverage to other ESG factors Competent authorities should precisely define their objectives when performing ESG stress testing, considering two main types of stress testing exercises:

• ▪ testing the robustness of capital and liquidity position and the loss-absorption capacity of financial entities in the face of economic and financial shocks linked to all material risks including ESG risks over a short-term horizon (e.g. up to five years);
• ▪ testing the resilience of financial entities’ strategy and business model to a range of ESG - related scenarios over a long-term (at least 10 years⁶ ) horizon.

Materiality assessment

1. Overview

1.1 References

1.2 Identified Requirements

1.3 Related Standards

2. Identified Requirements

3. Related Standards

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