EU: ESAs launch consultation on how to integrate ESG risks into the financial stress tests for banks and insurers

On 26 June 2025, the European Supervisory Authorities launched a consultation on their draft joint guidelines on ESG stress testing.  The consultation closes on 19 September 2025. The final guidelines are expected to be finalised and published by 10 January 2026.

Key features

The guidelines provide proposed guidance on the design and features of stress tests with ESG elements, as well as the organisational and governance arrangements such stress tests would need to have. These include:

• ensuring  the most suitable design and features of the stress test based on its intended objectives, considering two main types of stress test exercise:
  
  
  • testing the resilience of capital and liquidity position and the loss-absorption capacity of financial entities in the face of economic and financial shocks linked to all material risks including ESG risks, over a short- to medium-term (e.g. 5 years and below) horizon; 
     
  • testing the resilience of financial entities’ strategy and business model to a range of ESG related scenarios over a medium- to long-term (e.g. 5 to 10 years or longer) horizon. 
     
• adopting a risk-based approach, starting with a materiality assessment to identify the most relevant and impactful risks and determine which of those material risks shall be part of a stress test exercise scope
   
• taking a gradual approach to the implementation of ESG stress tests, initially prioritising environmental risks. In a first phase, competent authorities should focus on climate and environmental risks, addressing both physical risks (e.g., extreme weather events, biodiversity loss) and transition risks (e.g., policy shifts, market re-pricing) aiming to distinguish effects, even if indirect, on main risk exposures
   
• competent authorities coordinating across financial sectors to ensure a consistent approach to ESG risk assessment and to facilitate data sharing where appropriate (and with banking, insurance, and securities regulators collaborating to prevent bling spots 
   
• clearly defining the coverage in terms of time horizon, portfolios, sectors, geographies, and activities to ensure a balanced and pragmatic approach that reflects the maturity of available methodologies and data
   
• allocating sufficient human resources with relevant expertise, data collection and management capabilities that support access to high-quality ESG data and appropriate timelines for scenario analysis.

There is an expectation that, given the evolving nature of ESG risks and stress testing methodologies, competent authorities should regularly review and refine their stress testing frameworks. Lessons learned from previous exercises should be incorporated to the following ones, and updates should reflect emerging best practices, new regulatory requirements, and advancements in ESG data and modelling techniques.

Engagement with the ESAs

The ESAs will hold an online public hearing on the draft Guidelines on 26 August 2025, from 10:00-12:00 CEST. Further details will be provided closer to the event.

ESMA’s press release is here.