ESAs Publish Joint Guidelines on ESG Stress Testing

Why It Matters

The guidance standardises ESG risk assessment across Europe, reducing regulatory fragmentation and enhancing financial stability as climate‑related exposures grow.

Key Takeaways

• ESAs issue unified ESG stress‑testing guidelines
• Applies to EU banks and insurers
• No new supervisory testing mandates introduced
• National authorities follow “comply or explain” approach
• Guidelines flexible for future data and methodology improvements

Pulse Analysis

European regulators are tightening the reins on climate‑related financial risk, and the joint ESG stress‑testing Guidelines represent a pivotal step toward harmonised supervision. By bringing together the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, the ESAs aim to embed ESG considerations directly into the stress‑test regimes that already underpin capital adequacy assessments. This collaborative approach not only aligns with the Capital Requirements Directive and Solvency II mandates but also signals a broader regulatory consensus that ESG risks are material to the resilience of the financial system.

The Guidelines provide practical instructions for designing ESG‑inclusive stress scenarios, covering data sourcing, model integration, and governance structures. Importantly, they stop short of mandating new ESG‑specific tests, opting instead for a ‘comply or explain’ model that gives national competent authorities discretion while encouraging consistent methodology. This balance allows banks and insurers to incorporate climate, social and governance shocks into their existing frameworks without immediate operational overload, fostering a gradual but steady shift toward more comprehensive risk analytics.

For market participants, the publication heralds increased transparency and comparability of ESG risk exposures across the EU. As data quality improves and methodological standards evolve, firms that proactively adopt the Guidelines will likely gain a competitive edge, demonstrating robust risk management to investors and regulators alike. In the longer term, the flexible architecture of the Guidelines positions the European financial sector to adapt swiftly to emerging sustainability regulations and the accelerating pace of climate‑related financial disclosures.

ESAs publish joint Guidelines on ESG stress testing

ESAs publish joint Guidelines on ESG stress testing 08 January 2026

Guidelines and Technical standards

Joint Committee

The European Supervisory Authorities (EBA, EIOPA and ESMA - the ESAs) published today their Joint Guidelines on environmental, social, and governance (ESG) stress testing. These Guidelines provide national insurance and banking supervisors with clear guidance on how to integrate ESG risks into supervisory stress tests, both when using established frameworks and when conducting complementary assessments of ESG risk impacts.

The Guidelines set common standards for embedding ESG risks into stress testing methodologies across the EU’s financial system. They provide guidance on designing ESG-inclusive stress tests and outline the necessary organisational and governance arrangements.

The Guidelines are designed to support a consistent, long-term approach to ESG stress testing while allowing flexibility to accommodate future methodological advances and improvements in data availability. Importantly, they do not introduce new requirements for competent authorities to carry out ESG-focused supervisory stress tests.

Next steps

The Guidelines will be subject to a ‘comply or explain’ procedure by the National Competent Authorities and will be translated into all the official languages of the EU in the first quarter of 2026.

Background                                                                      

The Final Report on the Joint ESAs Guidelines on ESG stress testing follows a public consultation and sets out the final text of the Guidelines, together with an assessment of the comments received during the consultation process. These Guidelines are designed to ensure consistency, long-term perspective, and common standards for ESG risk assessment methodologies in line with Article 100(4) of the Capital Requirements Directive (CRD - Directive 2013/36/EU) and Article 304c (3) of Solvency II (Directive 2009/138/EC), which require the publication of the joint Guidelines by 10 January 2026.