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ECB Supervisory Stress Test shows that banks must focus on climate risk

ECB published aggregated results of its 2022 climate risk stress test on the 8 July 2022. In total, 104 significant banks participated in the premiere of ECB’s stress tests based on the information as of the 31 December 2021. Only 41 banks also took part in the fully fledged bottom-up climate risk stress test exercise.


Generally, the setup included 3 modules in which banks provided information on:

  • their climate stress-testing capabilities,
  • their reliance on carbon-emitting sectors and
  • a bottom-up climate risk stress test to evaluate performance under different extreme weather scenarios and transition scenarios over several time horizons.

One of the main results of module 1 was, that the majority of banks, around 59%, do not include climate risk in their stress testing framework and only 20% make use of climate risk as a variable in their loan granting process. An overview on the scores for the different segments ECB analyzed can be found below (score 1 best, score 4 worst) - based on bank individual input and ECB calculations.

The aggregated results of module 2 showed, that around 65% (median value) of bank’s interest income from non-financial corporates was linked to 22 carbon intensive sectors. However, often banks’ financed emissions came from a small number of large counterparties.


 Additionally, many proxies had to be used as data availability and reliance still needs to be improved across economic sectors.


The bottom-up stress test exercise (module 3) showed, that across Europe, banks’ vulnerability to heat, drought or flood events is heterogenous and dependent on sectoral activities and geographical location. Where heat and drought will decrease the productivity in agriculture, construction and mining, flooding most likely will hit the real estate sector and collaterals more severely.


Overall, the results showed that banks still have a long way to be fully aligned with ECB expectations regarding climate risks. However, through this exercise banks could gather valuable information and make first steps in learning how to implement climate related risk in their frameworks.This is also emphasized by the fact, that the climate risk stress test results will only be included in a qualitative way in the SREP but will have no effect on the capital requirements.

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RBI Regulatory Advisory

Raiffeisen Bank International AG | Member of RBI Group | Am Stadtpark 9, 1030 Vienna, Austria  | Tel: +43 1 71707 - 5923