Organisational and governance arrangements

Competent authorities should ensure that sufficient and adequate human and material resources are allocated to the process. This includes permanent or ad-hoc involvement of staff with expertise in ESG risk assessment, stress testing methodologies, and financial supervision.

Competent authorities should have data management and collection capabilities that support access to high-quality ESG data. They should also develop and maintain IT infrastructure that allows for efficient data collection, determining adequate scenario, and result analysis.

Timelines for the exercise

Competent authorities should set appropriate timelines for conducting ESG stress tests and scenario analyses, balancing the need for completeness and accuracy with requirements of the decision-making process. Financial entities should be given sufficient preparation time to compile relevant information and conduct their assessments while enabling competent authorities to perform a comprehensive review and ensure accurate reporting.

The process should be structured to facilitate efficient analysis, consistent communication of findings, and integration into the broader supervisory framework.

13 Data collection

For top-down exercises, competent authorities should rely, as much as possible, on regulatory reporting and leverage existing disclosure frameworks and external resources where relevant. They may consider ad-hoc data collections as a necessary complementary source of information. Collected information should be limited to the one used for the analyses and validation.

Where data gaps exist, competent authorities should promote the use of reasonable proxies, estimates, and expert judgment, while encouraging financial entities to improve internal data capabilities over time.

Quality assurance process

A rigorous quality assurance process should be implemented to verify the accuracy, consistency, and reliability of stress test results. Competent authorities should establish review mechanisms (e.g. benchmarking or peer reviews) to assess data quality, methodology robustness, and, where appropriate, scenario adequacy. Where necessary, expert judgment should complement quantitative findings to mitigate model limitations.

Effective dialogue with financial entities

Competent authorities should maintain effective and structured dialogue with financial entities throughout the stress testing process. This includes providing clear guidance on expectations, facilitating engagement at key stages, and ensuring that financial entities have the opportunity to clarify methodological aspects. Regular interaction will enhance the credibility of the exercise and improve financial entities’ ability to incorporate ESG risk considerations into their own risk management frameworks.

Cross-border and system-wide coordination

Where relevant and possible, competent authorities should coordinate across jurisdictions to allow a harmonised approach to ESG stress testing for cross-border financial groups. This includes collaboration with other supervisory authorities to align methodologies, share best practices, and avoid regulatory fragmentation.

When relevant, system-wide coordination should also be pursued to ensure that ESG stress tests account for broader financial stability risks and potential spillover effects across sectors.

Integration into the supervisory process

ESG stress test results should be, to the extent possible, integrated into the broader supervisory process. As methodological aspect and availability of data develop over time, competent

14 authorities should use the findings to inform risk assessments, capital adequacy reviews, and/or strategic discussions with financial entities.

The results should also guide supervisory follow-up measures and policy recommendations where ESG risks are identified as likely to pose material threats to financial stability.

Public disclosure of information

Publication of results should be in line with relevant sectoral regulation and supervisory practice. When choosing to publish results, competent authorities should weigh up the comparative benefits of publishing individual or aggregate results. The level of disclosure should be calibrated based on the reliability of the methodology and the quality of the data. Competent authorities should consider that transparency enhances market discipline, stakeholder confidence, and accountability. They should also ensure that information is interpreted correctly and does not lead to unintended market distortions. Disclosure can increase as results become more robust.

Regular review and evolution of ESG stress testing

Given the evolving nature of ESG risks and stress testing methodologies, competent authorities should regularly review and refine their stress testing frameworks. Lessons learned from previous exercises should be incorporated into the following ones, and updates should reflect emerging best practices, new regulatory requirements, and advancements in ESG data and modelling techniques.