Response to consultation on Guidelines on ESG scenario analysis
Question 1: Do you have any comments on the interplay between these Guidelines and the Guidelines on the management of ESG risks?
The guidelines on management of ESG risks and the guidelines on ESG scenario analysis are closely linked and introduce numerous new requirements for banks. The timing of their introduction is therefore a crucial factor in ensuring their success, i.e. the quality of the analyses and their effectiveness.
We consider it highly problematic that the guideline for ESG scenario analysis is scheduled to come into force on 11 January 2026. This is of particular concern since the introduction of the 'CRA' represents a completely new tool for banks that has not yet been tested. Implementing this tool requires the development of a new process that affects various organizational units within the bank, where the responsibilities within these units are not yet clearly defined. While the CST is a more established process, banks will also face new challenges here.
We therefore recommend postponing both guidelines. However, we strongly recommend postponing the guideline on ESG scenario analyses. It should be noted that postponing only one guideline will only work to a limited extent due to the interlinking of the guidelines.
Question 2: Do you have comments on the proposed definition of scenario analysis and its various uses as presented in Figure 1?
NA
Question 3: Do you have comments on the proposed distinction made between short-term scenario analysis (CST) and longer-term scenario analysis (CRA) as illustrated in Figure 3?
NA
Question 4: Do you have any comments on the interplay between these Guidelines and the Guidelines on institution’s stress testing?
NA
Question 5: Do you have comments on the Climate Scenario Analysis framework as illustrated in Figure 4?
We would appreciate a detailed overview of the number of scenarios to be calculated in each perspective. Please also note question 10, answer 3.
Question 6: While respecting the definitions provided in other parts of the regulation, is there any concept/s used in these guidelines that it would be useful to include in an annexed glossary?
We would appreciate it if the various scenarios (central scenario, baseline scenario, adverse scenario, alternative scenario, benchmark scenario, climate scenario) were included in a glossary. Further, it would be helpful if the definitions specified whether they are applicable to other supervisory texts, such as CSRD.
Question 7: Do you have comments on section 4.1 Purpose and governance?
With regard to §14 and §15, could you please explain in more detail how the scenarios are to be defined – should institutions first develop a qualitative description of the business environment in which they operate and then try to match this description with one of the available recognized scenarios, or should institutions alternatively first select a recognized scenario and then try to deduce what that scenario might mean for the business environment in which they operate? Further guidance on defining scenario narratives, supported by practical examples, is welcome.
Question 8: Do you agree that the proposed proportionality approach is commensurate with both the maturity of the topic and the size, nature and complexity of the institution’ s activities?
We welcome the proportionality approach and support the regulator's focus on climate risks. We understand the decision to give lower priority to other ESG risks for the time being. Like the regulator, we recognize that data and research on other ESG areas are not yet at the same level as for climate risks. We therefore consider that a specific stress test for social (S) and, in particular, governance (G) risks, as currently used in the climate stress test, may be less effective. More evidence and research is needed to assess the usefulness of such tests. However, conducting this test for the banks would be a heavy additional burden that may not be proportionate to the potential risk.
Question 9: Do you agree with the proposed references to organisations in paragraph 28? Would you suggest alternative or complementary references?
NA
Question 10: Do you have additional comments on section 5.1 Setting climate scenarios?
Answer 1: According to §40, institutions should use their central scenario and a number of alternative scenarios for CRA. The paragraph also states that the central scenario should reflect the most likely path that the institution considers possible for future developments. Based on this description, the central scenarios are institution-specific, could reflect any possible path if the institution considers this to be the most likely development, and could therefore differ from institution to institution. At the same time, in the context of transition planning, where among other things, business resilience analysis is one component to be considered, EBA/GL/2025/01 and CSRD, specify that institutions should benchmark their plans against a scenario that is consistent with limiting global warming to 1.5°C in line with the Paris Agreement and with the objective of climate neutrality by 2050 as set out in the EU Climate Law. From these requirements, it could be interpreted that a 1.5°C and climate neutrality scenario by 2050 should be used as the central scenario. Could you please clarify how institutions should deal with these two requirements. I.e. for the purposes of the CRA, should the 1.5°C and climate neutrality scenario by 2050 be used as the central scenario or could other pathways be used as the central scenario based on the institution's internal assessment? In any case, how should the link to the transition planning requirements be made?
Answer 2: In §39 it is stated that climate scenario with and without additional macroeconomic shocks should be considered. Could you please provide more guidance how combined scenarios should be created and how an estimate of the probability of occurrence of such scenarios could be derived. The latter is needed input in the assessment of the materiality of the results from the scenario.
Answer 3: § 35 lists a number of possible transition pathways that institutions should consider.
a) Could you please indicate whether this paragraph refers to the scenarios to be considered for both CST and CRA or only for one of these instruments.
b) As the list is not exhaustive, could you please indicate how many different climate scenarios for CST and CRA institutions are expected to analyze.
c) In the context of CST, where scenarios that consider combined climate and macroeconomic shocks need to be analyzed in addition to the pure climate scenarios, could you please also provide detailed guidance on how many scenarios are expected. As institutions typically have multiple macroeconomic scenarios and it is necessary to consider multiple climate pathways, the cartesian product could lead to a very high number of scenarios – which is not manageable and would lead to an unjustifiably high effort.
Answer 4: §28 and §29 state that institutions should use scenarios developed by widely recognized international, regional or national organizations as a starting point, but adapt them to the institutions' own characteristics. Is the requirement to adapt the scientific scenarios to the institutions' own characteristics only relevant for the short and medium-term scenarios or also for the long-term scenarios that are relevant for the CRAs? In the context of transition planning, EBA/GL/2025/01 requires that scientifically based and up-to-date scenarios from national, EU or international organizations should be used – we interpret the combined requirements from both papers in such a way that institution-specific adjustments should only be considered for the short and medium-term horizon, while for the long-term horizon the scenarios developed by widely recognized organizations should be adopted. Could you please confirm this understanding?
Answer 5: With respect to the analyses of physical risks, do we understand the requirements in §36 correctly, that for the analysis in the short- and mid-term scenario horizons in the context of CST, the focus should be on acute physical risks – meaning on the consequences of seldom and extreme physical events based on current evidence (e.g., using current hazard maps)?
Question 11: Do you have comments on the description of the climate transmission channels?
The list of climate transmission channels is comprehensible and detailed. However, it would be helpful to supplement it with information on practical implementation and guidelines for prioritizing the transmission channels.
Question 12: Do you have comments on climate stress test (CST) tool and its use to test an institution’s financial resilience?
NA
Question 13: Do you have comments on the Climate Resilience Analysis (CRA) tool and its use to challenge an institution’s business model resilience?
Answer 1: According to §81, the objective of the CRA is to define a long-term strategy and establish a process for adapting the business model to changes in the environment. For the analysis of the company's resilience, dynamic balance sheet assumptions must be taken into account. At the same time; however, the development of the balance sheet is closely related to the strategy – thus there is a circular relationship in the requirements, as an analysis of the institution's resilience must be used to determine the long-term strategy, but the latter also requires assumptions about portfolio development as an input. In addition, different scenarios will result in very different strategic responses, and it is not clear how the results from a number of representative central and alternative scenarios should be combined in determining the long-term strategy. Could you please elaborate on these issues? For example, one possible approach could be to start analyzing the company's resilience based on the current balance sheet structure. Based on the analyses, it is possible to identify sub-portfolios and business lines that are less profitable under certain scenarios and this will give an indication of how the composition of the portfolio should be adjusted to ensure long-term risk-adjusted profitability. The analysis could then be performed with the adjusted balance sheet to show that profitability and other KRI/KPI targets are met under the assumed balance sheet structure. The only question then is how to combine the results of the different scenarios to prepare the final strategy to be pursued. Guidance on this would be very welcome.
Answer 2: In the context of CRA, a more detailed guidance on how to model the risk-adjusted profitability per activity under different scenario would be welcome.
Question 14: Do you have any additional comments on the draft Guidelines on ESG Scenario Analysis?
NA