ECB Sanctions For Failure To Comply With Climate Stress Tests

Since 2022, the European Central Bank (the "ECB"), acting within the framework of the Single Supervisory Mechanism (the "SSM") established by SSM Regulation (EU) No 1024/2013 (the "SSM Regulation"), has progressively integrated climate and environmental risks into its prudential expectations. In practice, the ECB does not directly sanction the outcome of a climate stress test, which is often a diagnostic and prudential dialogue exercise. Instead, non-compliance with supervisory obligations associated with these expectations—failure to transmit information, persistent delays, or non-application of requirements—is addressed by the ECB in supervisory decisions.

What breaches related to climate stress tests are prohibited? Climate stress tests organized or requested by the ECB, whether or not integrated into the prudential dialogue, may give rise to highly operational expectations regarding data quality, modeling capacity, integration into the Internal Capital Adequacy Assessment