- EBA has issued draft guidelines on ESG scenario analysis as part of a broader initiative to strengthen institutions' capacity to manage ESG risks. This complements the existing EBA Guidelines on the management of ESG risks, published on 9 January this year. The consultation runs until 16 April 2025.
- Purpose and Governance: Scenario analysis serves as a tool to test financial and business model resilience against ESG-related risks. Institutions must integrate these analyses into governance structures, aligning them with internal and external risk management frameworks.
- Scenario Analysis Development: Institutions should utilize credible scenarios, such as those from international bodies like the Network for Greening the Financial System (NGFS). Both short-term (Climate Stress Testing) and long-term (Climate Resilience Analysis) scenarios are required to evaluate impacts on capital, liquidity, and business model viability.
- Proportionality Principle: Recognizing the nascent stage of ESG scenario analysis, a proportionality approach is emphasized. This ensures scalability based on institutions’ size, complexity, and exposure to ESG risks.
- Climate Risks Focus: While the guidelines address all ESG risks, climate risks are prioritized due to their significant impact. They emphasize the dual assessment of physical and transition risks over varying time horizons.
- Integration and Adaptation: Institutions are encouraged to iteratively develop scenario models, starting with qualitative approaches and gradually incorporating quantitative methods as data and tools evolve. Cross-functional collaboration within institutions is crucial to ensure robustness and relevance.
- Implementation Timeline: The guidelines will apply from January 2026 to large institutions and from January 2027 to small and non-complex institutions.
