Europe’s financial regulators are consulting on a common approach to incorporating environmental, social and governance (ESG) factors into stress testing across the financial sector.
In a joint consultation paper, the securities, banking, insurance and pension regulators are seeking feedback on proposed draft guidance for integrating ESG risks into supervisory stress tests for financial firms — either by incorporating ESG-related risks into their existing stress tests or by assessing ESG risks under adverse scenarios in additional assessments.
The proposals aim to harmonize the methodologies and practices regulators use to enhance the efficacy and efficiency of ESG stress testing across the financial system — including ensuring regulators have adequate human resources with expertise in data collection and analysis to support high-quality ESG and scenario analysis.
“[The proposals] provide comprehensive guidance on the design and features of stress tests with ESG elements, as well as the organizational and governance arrangements such stress tests would need to have,” the paper said.
The consultation will run until Sept. 11, and the regulators also plan to hold a public hearing on Aug. 26.
They aim to finalize the guidance by the end of the year and issue joint guidance on Jan. 10, 2026.