Final Guidelines on Environmental Scenario Analysis

The European Banking Authority's (EBA) final guidelines on environmental scenario analysis complement the EBA's guidelines on ESG risk management. Institutions must use these guidelines to assess their vulnerability to environmental changes, test the robustness of their strategies, and support the development of transition and adaptation plans, starting on 11 January 2027. Although these guidelines cover all environmental risks, the focus is primarily on climate, physical and transition risks, recognizing the greater methodological development that exists in these areas.

Final Guidelines on Environmental Scenarios Analysis

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Executive summary

The EBA's final guidelines provide a clear and consistent framework for incorporating environmental scenario analysis into institutions' risk management, strategic planning and long-term resilience assessment. The document complements the ESG Risk Management Guidelines and specifies the elements necessary to define consistent narratives, identify relevant transmission channels and select credible scenarios, always applying an approach proportionate to the size, complexity and risk profile of each institution.

The Guidelines will apply to all institutions from 1 January 2027.

Main content

The Guidelines on environmental scenario analysis cover the following key aspects:

• Purpose, governance and proportionality in environmental scenario analysis. Institutions should use scenario analysis to identify risks and opportunities arising from environmental factors, assess the vulnerability of their portfolios to physical and transition risks, and support the definition and review of their transition strategies and plans. The analysis should be integrated into a robust governance framework, with clearly defined responsibilities and a common narrative serving as the basis for the reference scenario. The level of sophistication should be proportionate to the materiality of the risks and the availability of data, allowing for qualitative or simplified approaches where appropriate.
• Development of environmental scenario analysis. Institutions should identify the transmission channels through which environmental risks may affect their portfolios and overall risk profile, differentiating between microeconomic and macroeconomic impacts. They should select and adapt credible scenarios, preferably based on recognized organizations, ensuring their internal consistency and relevance to the institution's material risks. The analysis can be complemented by sensitivity analysis as a proportional tool to explore uncertainties, validate key assumptions and reinforce the robustness of results.
• Types of environmental scenario analysis. The Guidelines differentiate between stress tests, which aim to assess financial resilience to short-term environmental shocks using a baseline scenario and severe but plausible adverse scenarios, and resilience analysis, which aims to assess the viability of the business model in the medium and long term under multiple divergent scenarios. Both exercises should be based on careful use of expert judgment, consider the limitations associated with scenario analysis and contribute to improving institutions' ability to cope with uncertain futures.

Download the technical note on the Final Guidelines on Environmental Scenario Analysis.