From Pilot to Policy: How Regulators Are Rewiring Climate Stress Testing

Event Q&A

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

Why a New Regulatory Approach Leaves Europe's Banks Facing a Climate Reality Check

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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