Legal & Regulatory News

European Central Bank launches 2022 climate risk stress test

On 27 January 2022, the European Central Bank (ECB) launched its 2022 climate risk stress test (2022 CST) which involves banks that are part of the Single Supervisory Mechanism and which the ECB directly supervise. The 2022 CST will extend over the first half of 2022, before the ECB then publishes the aggregate results as part of its supervisory review and evaluation process, using a qualitative approach.

The macro-financial scenarios to be tested against were prepared by the Network of Central Banks and Supervisors for Greening the Financial System and will allow the ECB to examine banks' mobility in dealing with financial and economic shocks originating from climate risk. The 2022 CST comprises three modules:

• a questionnaire on bank's climate stress test capabilities;
• a peer benchmark analysis to assess banks' business models and exposure to emission-intensive companies; and
• a bottom-up stress targeting transition and physical risks.

The 2022 CST aims to identify vulnerabilities and challenges that banks face when managing climate-related risk, whilst simultaneously establishing best practices. It complements other ECB Banking Supervision and climate-related deliverables such as the economy-wide climate change stress test and the assessment of how banks are adjusting their practices to manage climate-related and environmental risks, both of which were publishes in the second half of 2021.

Click here to access view the information note published by the ECB.

Click here to view the ECB press release.