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Article
Why a New Regulatory Approach Leaves Europe’s Banks Facing a Climate Reality Check
Supervisors across Europe are evolving climate stress testing from experimental pilots to strategic tools shaping financial resilience and policy.
May 26, 2025
Thea Holland, Conference Producer, Center for Financial Professionals
Tags:
Stress Testing
ESG and Climate Risk
The views and opinions expressed in this content are those of the thought leader as an individual and are not attributed to CeFPro or any other organization
- Climate stress testing has evolved from awareness-raising exercises to structured supervisory frameworks
- The EBA’s
2020 pilot established a baseline for assessing sustainability and
climate-relevant exposures
- Data
limitations persist especially for SMEs retail exposures and physical risks
with incomplete or proxy-based information
- NGFS
scenarios are now more refined capturing market transmission mechanisms like
green bubbles and repricing shocks
- Short-term
testing focuses on vulnerabilities while long-term efforts explore strategic
viability under different pathways
- The Fit for
55 initiative is testing the financial system’s resilience under EU climate
transition scenarios
- Results from
this cross-sectoral exercise will shape new supervisory guidelines under CRD6
- Nature-related
financial risks are acknowledged but remain a future priority due to lack of
frameworks
- Harmonized
EU-wide guidance aims to integrate climate risks into prudential oversight
- Supervisors
are committed to realism and consistency while supporting the broader
sustainability transition
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