The European Banking Authority (EBA) has published its final Guidelines on Environmental Scenario Analysis, setting out supervisory expectations on how banks should assess and manage environmental risks. The guidance complements the EBA’s existing Guidelines on the Management of Environmental, Social and Governance (ESG) Risks and forms part of its wider sustainable finance roadmap.
Aimed at strengthening the banking sector’s capacity to adopt forward-looking risk assessment methods, the new guidelines are built on two key pillars:
- Integration into stress-testing frameworks: Banks will be required to incorporate environmental risk factors into their existing stress-testing processes. This will enable them to gauge the short-term financial impact of environmental risks and ensure that capital and liquidity buffers remain sufficient.
- Resilience analysis: Institutions will also need to evaluate the medium- and long-term implications of environmental risks and opportunities for their business models, strategies and risk profiles.
Together, these approaches are designed to embed environmental risk considerations more deeply into banks’ strategic planning and risk management, while ensuring greater consistency across the EU banking system.
The guidelines, which take effect on 1 January 2027, are grounded in Article 87(a)(5) of the Capital Requirements Directive (CRD6) and Article 177(2a) of the Capital Requirements Regulation (CRR3). They represent another step in the EBA’s ongoing efforts to integrate ESG risks into the prudential regulatory framework and support the EU’s broader sustainable finance objectives.
