Legal & Regulatory News

​ECB publishes results of 2022 climate risk stress test

On 8 July 2022, the results of the European Central Bank (ECB) climate risk stress test were published together with an accompanying FAQ document. According to the ECB, the results show that banks do not yet sufficiently incorporate climate risk into their stress-testing frameworks and internal models, despite some progress having been made since 2020.

The ECB's stress test consisted of three modules, in which banks provided information on their: (i) own climate stress-testing capabilities, (ii) reliance on carbon-emitting sectors, and (iii) performance under different scenarios over several time horizons.

The ECB highlighted various findings as a result of the climate risk stress test, including that:

• 60% of the banks tested did not yet have a climate risk stress-testing framework;
• most of the banks tested did not include climate risk in their credit risk models; and
• just 20% considered climate risk as a variable when granting loans.

The results of the ECB's climate risk stress test will now feed into the ECB's Supervisory Review and Evaluation Process from a qualitative point of view. Whilst the ECB has announced that there will be no direct impact on capital through the Pillar 2 guidance this year, all participating banks have received individual feedback and are expected to take action in line with a set of best practices that the ECB intends to finalise and publish in the final quarter of 2022.

Click here to access the ECB's 2022 climate risk stress test.

Click here to access the press release.

Click here to access the FAQs.