Commission asks EU financial watchdogs for ‘one-off’ climate stress test

ESAs called on to work with the European Central Bank and European Systemic Risk Board to test the resilience of financial sector against 2030 climate goals.

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The European Commission has called on Europe’s financial watchdogs to undertake a “one-off” climate stress test to assess the resilience of the bloc’s financial system against the EU’s 2030 climate goals. 

The request to the regulators – known collectively as European Supervisory Authorities (ESAs) – came in a letter from the commission’s directorate-general for financial stability, financial services and capital markets union, John Berrigan, on Wednesday. 

“This one-off exercise should go beyond the usual climate stress tests, as a cross-sectoral exercise looking also at contagion and second-round effects, thereby giving us a better understanding of the vulnerabilities in the financial system,” Berrigan wrote. 

He added that the Commission would also appreciate “any insights into the financial system’s capacity to support green investments under stress”. 

The ESAs are made up of the European Insurance Occupational Pensions Authority, the European Securities Markets Authority and the European Banking Authority. 

This new task should be undertaken in cooperation with the European Central Bank and European Systemic Risk Board, Berrigan stated.  

The EU has set a goal of reducing its emissions by at least 55 percent by 2030, compared with 1990 levels.  

“To ensure financial stability and to enable the financial sector to play its role in financing the transition, we need to be aware of any potential vulnerabilities in the financial sector and of how stress in the financial system could affect the transition to the 2030 goals,” the letter said.  

It acknowledged that the work was a “complex task” that would “take some time to carry out”, but added: “It will be important to have any policy-relevant conclusions not later than Q1 2025, in order to provide input into the work of the new commission.”