Legal & Regulatory News

European Central Bank publishes results and methodology of economy-wide climate stress test

On 21 September 2021, the European Central Bank (ECB) published the results of its first economy-wide climate stress test (ECB Occasional Paper Series No 281 / September 2021) which builds on exercises performed previously by other central banks and supervisory authorities across four dimensions.

The ECB's climate stress test concludes (amongst other things) that:

• the benefits of acting early on climate change are clear due to the fact that the short term costs of the transition are likely to be small relative to the costs of unfettered climate change in the medium to long run;
• the effects of climate risks are likely to vary depending on geographic location and sector; and
• the impact on banks’ expected losses is mostly driven by physical risk and is potentially severe.

Click here to access the results and methodology of the stress test.