European Central Bank: Climate Risk Stress Test: SSM Stress Test 2022

The European Central Bank (‘ECB’) encourages banks to develop improved understanding of transition risks associated with mortgage books. ECB Climate Stress Testing Guidance requires mortgage exposures to be broken down by Energy Performance Certificate (‘EPC’) rating. Banks can utilize model-based estimates of the EPC category based on collateral characteristics that determine energy use in kWh/m2/year. Three proxy methodologies are outlined for estimating EPC categories.

The ECB provides banks with guidance on performing climate risk stress tests. Methodological requirements outlined in the guidance are to be considered uniform approach for conducting a bottom-up exercises.

Objectives of the guidance include:

  • Main Characteristics of the 2022 Climate Risk Stress Testing Exercise and Guidance for Banks on How to Conduct the Exercise
  • Submission Process for Banks and Quality Assurance Process Overview
  • Stress Test Template Instructions

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