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July 2025 Report from the Climate & Environmental Scenario Workstream of the C-ESG Risk Roundtable

Brussels, 17 July 2025 – The July 2025 report of the Climate & Environmental Scenario Workstream of the C-ESG Risk Roundtable explores the evolving practices and ongoing challenges banks face in conducting climate and environmental scenario analyses and embedding these into their risk management frameworks.

This publication is the result of collaborative work by the members of the Climate Scenario Analysis (CSA) and Environmental Scenario Analysis (ESA) sub-streams, under the Scenario Analysis – ICAAP – Risk Materiality Workstream. The work has been facilitated by BNP Paribas in its role as chair of the Workstream, with the European Central Bank (ECB) and the European Banking Federation (EBF) participating in an observing capacity.

The objective of the report is to provide an annual update on emerging practices and forward-looking developments in climate and environmental scenario analysis, internal capital assessment, and risk materiality. While the initial focus in 2024 was on climate risk factors, the scope was expanded in 2025 to include environmental risks through the creation of the ESA sub-stream.

Climate and environmental risk considerations are progressively becoming integral to banks’ strategic planning and governance. Institutions are beginning to reflect these risks in their credit risk strategies, portfolio steering, and client engagement. The integration of scenario analysis into decision-making processes – such as capital allocation, provisioning, and business model alignment – is accelerating, especially in light of evolving regulatory and supervisory expectations.

This report contributes to a broader effort to strengthen collective understanding across the financial sector and to foster greater alignment in how ESG-related risks are assessed and managed.

Key Takeaways from the 2025 Edition

Climate Scenario Analysis

• Scenario analysis is increasingly viewed as a practical tool to assess the financial impact of climate-related risks, supported by scientifically credible external scenarios (e.g., NGFS, IEA) adapted to institutional portfolios.
• The report shares good practices and highlights ongoing challenges, particularly in scenario design, identification of transmission channels, and integration into credit, market, and operational risk models.
• Emphasis is placed on the importance of robust data strategies, dynamic balance sheet modelling, and incorporation of climate risks into ICAAP and provisioning frameworks.

Environmental Scenario Analysis

• Environmental scenario analysis remains at an earlier stage of development than its climate counterpart.
• Banks face key obstacles, including the lack of standardized forward-looking scenarios and gaps in relevant environmental risk data.
• The report introduces initial approaches to defining transmission channels and outlines a roadmap for enhancing environmental risk modelling and integration into business strategies.

For more information:

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.