EBA includes climate risks in EU-wide bank stress tests for the first time.

The draft methodology for the 2027 stress tests introduces a new climate module that assesses the impacts of both transition and physical risks on bank portfolios.

What the module covers:

Transition risks — scenario of a sudden change in climate policy: a sharp rise in carbon price, energy price shocks, sectoral impacts on gross value added. In other words: what happens to the portfolio when regulation tightens faster than the market expects.

Physical risks — scenario of simultaneous river floods across EEA countries. Focus on real property damage and its impact on loan portfolios.

The module focuses on exposures to non‑financial enterprises and real estate — where the transmission channels of climate risks are strongest.

In the first phase the climate module will not affect the main outcomes of the stress test. But the EBA clearly states that this is the first step towards embedding climate into prudential supervision.

At the same time the EBA simplified the entire framework by 55% of data points. 63 banks, 75% of EU banking sector assets.

For banks this means: climate data cease to be an ESG exercise and become part of core risk management.

Source: https://www.esgtoday.com/eba-integrates-climate-risk-into-eu-banking-stress-test/?utm_source=rss&utm_medium=rss&utm_campaign=eba-integrates-climate-risk-into-eu-banking-stress-test