Taking into account that the outcome of such an analysis depends greatly on the chosen scenario, the underlying assumptions and models used, institutions are advised to apply a range of different plausible scenarios for informing their business strategies. By way of example, institutions could base themselves on the three representative scenarios developed by the Network for Greening the Financial System (NGFS) which are the ‘orderly’, ‘disorderly’ and ‘hot house world’ scenarios, but would necessarilyhave to break them down from the global and macroeconomic to the microeconomic level. In the EU context, institutions could consider a scenario representative of EU environmental objectives and assess the implications for their business strategies of the actions planned under the European Green Deal and of the realisation of CO2 emissions reductions targets set for 2030 and 2050. Institutions could draw strategic conclusions from the outcome of such analyses depending on the estimated impacts and the likelihood they associate with each scenario. However, from a prudential perspective, institutions should also prepare for less likely, adverse scenarios.

When applying scenario analysis, the specific characteristics and risks of the institution’s business model need to be taken into account. Different risks may arise depending, among others, on the geographical location, counterparties’ strategies and the economic sectors of the exposures.