New EBA guidelines: Act now - scenario analysis as the key to a resilient banking strategy

The European Banking Authority (EBA) published new guidelines on Environmental Scenario Analysis on November 5. This significantly sharpens the supervisory authority's future expectations of ESG scenario analyses.

Thematically, these guidelines are part of the EU banking package and the Capital Requirements Directive (CRD) VI and, together with the guidelines on the management of ESG risks published in January of this year, form the foundation for ESG risk management.

The focus here is on the expectation that banks systematically carry out scenario analyses in order to strengthen their financial resilience to environmental and climate risks and to recognize their impact on their own business model as well as ICAAP and ILAAP at an early stage. A distinction must be made between short-term stress tests (up to 5 years) and long-term resilience analyses (over 10 years)

The current focus of scenario analyses is clearly on the ESG component "environment". However, it cannot be ruled out that social and governance risks will also need to be included in the future.

The EBA emphasizes the use of scientifically based scenarios and stresses the principle of proportionality: large and complex institutions should develop quantitative models, while smaller institutions can initially use qualitative or simplified approaches.

The guidelines are to be applied from January 1, 2027. The next step is to carry out the mandatory "comply-or-explain" procedure of the national supervisory authorities.

As a result of the new guidelines, we see the following strategic challenges for banks:

• Integration into strategy and governance: environmental scenarios are becoming a central management tool. Banks must integrate risk, sustainability and strategy processes more closely.
• Data and modeling: Lack of ESG data and complex interactions between physical and transition risks require new data sources and data platforms.
• Long-term uncertainties: Traditional models are reaching their limits - scenario thinking and flexibility are becoming success factors.
• Regulatory complexity: In parallel with CRD VI, CSRD and CSDDD, high demands are being placed on data quality, consistency and governance.

Our recommendation to you:

The EBA guidelines mark a turning point: environmental and climate risks are becoming a key driver of strategic management in the banking sector. Investing in data, skills and governance at an early stage not only ensures regulatory compliance, but also strategic future viability in a sustainable financial system. CURENTIS AG is at your side as a competent partner to

• develop a roadmap for EBA-compliant scenario analysis,
• systematically build ESG dataand modeling capabilities and
• integrate the results into your business strategy and capital planning.

About the Author:

Jonathan Hantel has been a Senior Consultant at CURENTIS AG since 2023. He has many years of experience in the areas of risk management and regulatory reporting as well as the common software solutions. His banking focus is on regulatory reporting and the analysis and implementation of regulatory requirements.