In a reply to a European Parliament enquiry, ECB Banking Supervision set out how it will supervise banks’ business model sustainability and preparedness for “delayed transition” climate scenarios, confirming that climate change and nature degradation will remain supervisory priorities over the 2026-2028 cycle. The letter points to transition risks from postponed climate action, citing Network for Greening the Financial System scenarios that imply higher risks under delayed or disorderly transitions. It also references the 2024 Fit for 55 scenario analysis by the ECB and the European Supervisory Authorities, which assumed full implementation of the package and concluded that potential bank losses from Fit for 55-related transition risks, taken in isolation, are unlikely to threaten EU financial stability. The ECB frames its supervisory expectations around Capital Requirements Directive Article 87a, including requirements for robust climate and nature risk management over short, medium and long-term horizons of at least ten years and resilience testing under baseline and adverse scenarios, and notes that the European Banking Authority’s environmental scenario analysis guidelines expect institutions to have both stress testing and resilience analysis tools in place by 2027. ECB Banking Supervision is developing, with the EBA and EU authorities, a framework to incorporate climate risks into regulatory stress testing, including delayed or disorderly transition scenarios. Supervision of new requirements on business model assessment and prudential transition planning will be phased in via a gradual, targeted approach, starting with informal supervisory dialogues that will continue throughout 2026; recent targeted reviews found that while most banks now treat climate factors as material for credit risk and have embedded climate risk in stress testing, gaps remain in robustness and comprehensiveness.
European Central Bank - Banking Supervision 2026-01-22
European Central Bank confirms climate and nature risks will remain a 2026-2028 supervisory priority and outlines a gradual approach to transition planning and scenario analysis
The ECB Banking Supervision outlined its strategy for supervising banks' business model sustainability and preparedness for delayed transition climate scenarios, prioritizing climate change and nature degradation for 2026-2028. In collaboration with the EBA and EU authorities, the ECB is developing a framework to integrate climate risks into regulatory stress testing, with new requirements on business model assessment and prudential transition planning to be phased in gradually starting in 2026.