The European Supervisory Authorities (the European Banking Authority, European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority) have launched a joint consultation on their joint draft guidelines for integrating environmental, social and governance (ESG) risks into financial stress tests for banks and insurers. These guidelines, mandated by the Capital Requirements Directive (CRD) and the Solvency II Directive, aim to harmonise how competent authorities across the EU consistently incorporate ESG risks into their supervisory frameworks. They establish a common framework for designing ESG-related stress testing methodologies and standards, ensuring consistency across the financial sector. They allow authorities to either integrate ESG risks into existing stress testing frameworks or conduct complementary assessments under adverse ESG scenarios, depending on the applicable sectoral legislation. Key elements of the draft guidelines include: (i) detailed guidance on the design and features of ESG stress tests; and (ii) organisational and governance requirements, including sufficient human resources with ESG expertise, data collection and management systems and appropriate timelines for scenario analysis. The guidelines are also designed to be forward-looking, allowing for future methodological advancements and improvements in ESG data availability. The deadline for responses is 19 September, with a public hearing scheduled for 26 August. The guidelines are expected to be finalised by the end of the year and published by 10 January 2026.
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