EBF RESPONSE

EBF Response to the consultation paper on Joint ESAs Guidelines on ESG Stress Testing

Brussels, 16 September 2025 – The European Banking Federation has submitted its response to the Joint European Supervisory Authorities’ (ESAs) consultation on the draft Guidelines for ESG Stress Testing.

Key messages:

• The EBF welcomes the Guidelines and cross-sectoral approach.  It is essential that regulators coordinate their ESG stress tests, sharing scenarios, macro assumptions, and data where possible to ensure and avoid regulatory gaps between financial sectors . Given the difficulty in modeling interconnections and spillover effects between financial sectors we encourage supervisory authorities to directly embed these factors into the scenarios assumptions.
• Proportional application  differentiating  approach for smaller institutions should be adopted (including on S&G).
• The current level of models’ maturity does not yet support the use of quantitative results from climate stress tests to inform capital requirements. A complementary layer that will generate double-counting with capital add-ons should also be avoided. ESG shocks could be incorporated into typical macro-financial scenarios, ensuring consistency with the existing supervisory model and preventing duplication.
• The availability of data for the portfolios/counterparties has to be considered  as both  the size of the counterparty and its disclosure obligations significantly impact the availability of data and the possibility of conducting stress analyses. Expectations regarding the development and applicability of quantitative methodologies built upon stagnant or incomplete data must be appropriately recalibrated. Voluntary reporting of companies outside of the CSRD scope should be incentivized to enhance data availability. Proxies must be identified and ruled properly to avoid asymmetries and ensure consistency of analysis and judgment.
• Supervisors should focus on  financially material  C&E risk factors identified by banks and most material portfolios and asset classes. With regard to S&G risks, where quantitative information is initially lacking, qualitative assessment methodologies should be adopted first.
• While the  resilience of  strategies  and business models‘ testing  provides  insights into potential areas of vulnerability and transmission channels, it is not an indicator of the likelihood of occurrence or that the impacts will mirror the dynamics of the variables analyzed in the scenario analysis. Given the  high level of uncertainty around the underlying scenarios and their likelihood,  conclusions should be drawn with caution. These scenarios should only concern the parts of the portfolio that are most sensitive to ESG factors and applied proportionally.
• The  materiality assessments requirements  could be more concrete and simplified,  designed in a practical and proportionate manner, aligning the application scope with EBA Risk Management Guidelines. Extensive datasets  and stress test scenarios for ESG risk factors that are not material at the institutional level should not be required.
• A  3-year time  horizon  instead of the proposed 5 years should be used to maintain consistency with ICAAP. While the >10 years long-term time horizons is theoretically understandable, from practical perspective, there are significant uncertainties in implementation especially in terms of data availability, model maturity, and methodological robustness. For SNCI in particular, this should be reconsidered and a qualitative approach beyond 5 years should be adopted first.
• Considering scenario design, further clarity on their construction, internal consistency , assumptions, treatment of compound risk and amplification of shocks and terminology used is desirable as is provision of limited number of scenarios (2-3) delivered well in advance with  broad coverage of variables. ESG components of adverse scenarios should remain severe but plausible and consistent with
• macroeconomic dynamics.
• The top-down approach should be explicitly permitted and established as the preferred standard method, particularly for less complex institutions. Bottom up approaches are suitable where methodologies are mature.  Hybrid approaches that integrate both top-down and bottom-up calculations should be allowed.
• The level of requirement for the input granularity level of the stress test must take into account the usability of the output granularity level and the aggregation of the results. Overly  granular data as input to the stress test is not useful  if this level of granularity is not used in the output of the model.  The non-availability of granular data  beyond the industry level  (e.g. at the technology level) should be considered. It is also challenging to further break down the risk beyond physical and transition risk  (e.g. policy, technological).  Pragmatism is needed.
• The publication of ESG results should be very cautiously implemented favoring aggregated results for ESG information until proper understanding of associated challenges

You can access the full EBF response here.

For more information:

Denisa Avermaete, Head of Sustainable Finance Team,d.avermaete@ebf.eu

Matilde Quarin, Policy Adviser – Prudential Policy & Supervision, m.quarin@ebf.eu

The European Banking Federation is the voice of the European banking sector, bringing together national banking associations from across Europe. The federation is committed to a thriving European economy that is underpinned by a stable, secure, and inclusive financial ecosystem, and to a flourishing society where financing is available to fund the dreams of citizens, businesses and innovators everywhere.