The European Union’s (EU) financial regulators will carry out a comprehensive system-wide analysis of the financial sector’s resilience to climate-related risks, according to a letter by the European Commission, as reported by ESG Today on March 10. The commission suggested in the letter that the EU’s three primary financial regulatory bodies, namely the European Supervisory Authorities (ESAs), including the European Banking Authority (EBA), the European Insurance and Occupational Pensions Authority (EIOPA), and the European Securities and Markets Authority (ESMA), collaborate with the European Central Bank (ECB) and the European Systemic Risk Board (ESRB) to conduct a one-off climate risk scenario analysis. In addition to examining individual sector resilience, the test will also study contagion and second-round effects to identify system-wide vulnerabilities, as detailed in the letter.

The planned stress test is intended to provide a better understanding of any potential vulnerabilities in the financial sector and how stress in the financial system could affect the transition to the 2030 climate goals, as John Berrigan, head of the commission’s financial services unit, stated in the letter. The EU has proposed a European climate policy package called ‘Fit for 55’ in July 2021, which aims to reduce greenhouse gas (GHG) emissions by at least 55% by 2030 and achieve carbon neutrality by 2050. Also in July 2021, the Commission released the Strategy for Financing the Transition to a Sustainable Economy to promote a more sustainable financial system. As part of the EU’s efforts to promote a more sustainable financial system under ‘Fit for 55’, several climate-related stress tests have already been conducted or planned by EU regulators and the ECB.

Sources：

https://www.esgtoday.com/eu-regulators-to-conduct-financial-system-wide-climate-stress-test/

https://www.reuters.com/business/sustainable-business/eu-test-financial-systems-ability-help-cut-carbon-emissions-2023-03-09/

https://www.consilium.europa.eu/en/policies/green-deal/fit-for-55-the-eu-plan-for-a-green-transition/

https://www.eiopa.europa.eu/browse/financial-stability/occupational-pensions-stress-test/climate-stress-test-occupational-pensions-sector-2022_en

https://www.bankingsupervision.europa.eu/press/pr/date/2022/html/ssm.pr220127~bd20df4d3a.en.html