The European Banking Authority (EBA) today launched a public consultation on its draft Guidelines on Environmental, Social and Governance (ESG) scenario analysis. The draft Guidelines set out expectations for institutions when adopting forward-looking approaches and incorporating the use of scenario analysis as part of their management framework to test institutions’ financial and business model resilience to the negative impacts of ESG factors. They complement the EBA Guidelines on the management of ESG risks, published on 9 January this year. The consultation runs until 16 April 2025.Climate change, environmental degradation, social issues and other environmental, social and governance factors are posing considerable challenges for the economy that impact the financial sector. The risk profile and business model of institutions may be affected by ESG risks, in particular environmental risks through transition and physical risk drivers.To ensure the safety and soundness of institutions in the short, medium and long term, the Guidelines set out expectations for developing a framework and using scenarios to support thinking and decision-making in a changing economic and physical environment. As part of this, the Guidelines set out principles for testing the financial resilience, capital and liquidity, of an institution to ESG-related shocks, starting with climate, and the resilience of its business model to different plausible scenarios, including the achievement of climate neutrality in the EU by 2050.Consultation processComments to the consultation paper can be sent by clicking on the "send your comments" on the EBA's consultation page. The deadline for the submission of comments is 16 April 2025. The EBA will consider the feedback received to this consultation when finalising the Guidelines.All contributions received will be published following the end of the consultation, unless requested otherwise.The EBA will hold a virtual public hearing on the consultation paper on 17 March 2025 from 14:30 to 16:00 CET. The EBA invites interested stakeholders to register using this link by 13 March 2025 at 16:00. The dial-in details will be communicated to those who have registered for the meeting.Legal basis and backgroundThe draft Guidelines were developed in line with the EBA Roadmap on Sustainable Finance and as part of the planned EBA’s actions for the implementation of the EU banking package. Together with the Guidelines on the management of ESG risks, they deliver on the mandate laid down in Article 87(a)5 of the Capital Requirements Directive (CRD6), (Directive 2013/36/EU).
Brief
"On 16/01/2025, the European Banking Authority (EBA) issued an update regarding The EBA consults on Guidelines on ESG scenario analysis. The draft Guidelines set out expectations for institutions when adopting forward-looking approaches and incorporating the use of scenario analysis as part of their management framework to test financial resilience to ESG factors."
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Purpose
The European Banking Authority (EBA) has launched a public consultation on its draft Guidelines on Environmental, Social and Governance (ESG) scenario analysis. The primary objective is to establish expectations for financial institutions when adopting forward-looking approaches and incorporating scenario analysis into their management framework to assess the resilience of their financial and business models to ESG factors.
Effects on Industry
The EBA’s draft Guidelines are expected to have a significant impact on the banking industry, as they aim to ensure the safety and soundness of institutions in the short, medium, and long term. The guidelines will require institutions to develop a framework and use scenarios to support thinking and decision-making in a changing economic and physical environment. This may lead to changes in business practices, investment strategies, and risk management approaches within the industry.
Relevant Stakeholders
The EBA’s draft Guidelines are relevant to various stakeholders, including financial institutions, regulatory bodies, and the broader public. Financial institutions will be directly affected by the guidelines, as they will need to adapt their business models and risk management practices to comply with the new regulations. Regulatory bodies, such as the European Commission and national authorities, will also be impacted, as they will need to implement and enforce the guidelines.
Next Steps
The public consultation on the EBA’s draft Guidelines is open until 16 April 2025. Interested stakeholders can submit comments by clicking on the “send your comments” link on the EBA’s consultation page. The deadline for submitting comments is 16 April 2025. The EBA will consider the feedback received during the consultation when finalizing the guidelines. A virtual public hearing on the consultation paper will be held on 17 March 2025 from 14:30 to 16:00 CET.
Any Other Relevant Information
The EBA’s draft Guidelines were developed in line with the EBA Roadmap on Sustainable Finance and as part of the planned EBA’s actions for the implementation of the EU banking package. The guidelines complement the EBA Guidelines on the management of ESG risks, published on 9 January this year. The consultation process is a critical step towards finalizing the guidelines, which will provide a framework for financial institutions to manage and mitigate ESG risks in a changing economic and physical environment.
