The European Central Bank (ECB) is required to carry out annual stress tests on supervised entities in the context of its Supervisory Review and Evaluation Process. In this context, the ECB has published the Climate risk stress test methodology to enhance the capacity of both banks and supervisors to assess climate risk. To this end, the ECB has set out the process for the banks’ data submissions and has provided instructions on how to complete the stress test templates.


Climate Stress Test

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Executive summary

The ECB has published the Climate risk stress test methodology which outlines the main characteristics of the 2022 climate risk stress test and provides banks with guidance on how to conduct it. The 2022 ECB climate stress test exercise implies several challenges for the entities related to the coordination of the exercise, qualitative information requested, data, models and methodologies, tools and the development of the exercise.

Main content

This Technical Note summarises the main aspects of the exercise:

Structure of the exercise. The climate risk stress test exercise is structured in three modules:

  • Module 1. Consists of a qualitative questionnaire, that concern qualitative information on the institution’s current practices and comprises 11 blocks.
  • Module 2. The banks are requested to provide two climate-related metrics: one in relation to revenues from a set of emissions intensive sectors, and one in relation to the intensity of financed emissions.
  • Module 3. Requires the methodological approaches for assessing the credit risks arising from transitional and physical risks, both in the short and in the long-term.

Scenarios. The climate stress test methodology considers different scenarios with different methodologies and time horizons: On one hand transition risks: a short term (3 years) under baseline and stress and long term (30 years) under orderly transition, disorderly transition and hot-house scenarios; and in the other hand Physical risk: short term (1 year) under baseline and stress scenarios for drought and heatwave and flood scenarios.

Participating entities. All significant institutions will have to develop Modules 1 and 2, as well as the Module 3 starting point. The ECB will identify the set of institutions that have to conduct Module 3 projections.

Challenges. The 2022 ECB climate stress test exercise implies several challenges for the entities related to the coordination of the exercise the availability data of data for complete the modules, models and methodologies, tools and the development of the exercise due to the tight deadlines to comply to the tentative calendar.

Download the technical note by click​ing here (technical note only available in English).