The EBA also sees a need to gradually develop methodologies and approaches to test the resilience of institutions to the long-term negative impacts of environmental, social and governance factors. The initial objective of this testing should be to assess the long-term resilience of institutions’ business models and support the setting of ESG-risk-related strategic objectives and/or limits. When these methodologies and approaches are sufficiently tested, it will provide institutions with additional input into the assessment of their ICAAP and ILAAP. This gradual approach also implies the prioritisation of testing resilience to the environmental factors, for which more data and methodologies are available, followed by social factors.

The identification of exposures affected by climate-related risks is the basis of a climate risk stress test. Up until now, only limited empirical and sufficiently granular data exist to measure actual climate risk exposures. Moreover, classifying green versus non-green exposures in a consistent manneris currently one of the major challenges. In addition, translating borrower level criteria into supervisory data requirements at exposure class level also appears to be fraught with operational issues as more granular information would be needed at activity level to identify those borrowers that are particularly exposed to climate risk. Moreover, integrating input data with a broader set of climate risk indicators, such as those defined by external data providers, or with public information on the borrower, could pose significant comparability and data quality issues.