Joint ESAs Guidelines on ESG Stress Testing

The Joint Committee of the ESAs has issued guidelines (JC/GL/2025/78) establishing the first harmonised EU framework for ESG stress testing applicable to credit institutions, investment firms, insurers, and pension funds. The guidelines specify requirements for scenario design, methodology development, frequency of testing, and reporting obligations related to environmental and climate risks. The guidelines cover both qualitative and quantitative approaches to stress testing, including backward-looking analysis and forward-looking climate scenarios aligned with EU climate policy objectives.

Financial institutions subject to these guidelines should assess their current ESG stress testing capabilities against the new requirements and develop an implementation roadmap. Entities must update their risk management frameworks to incorporate ESG stress testing scenarios covering climate transition risk, physical risk, and sustainability-related factors. Compliance teams should coordinate with risk management, finance, and sustainability functions to align stress testing outputs with strategic planning and supervisory reporting. National competent authorities are expected to apply these guidelines from their effective date.