The European Supervisory Authorities (EBA, EIOPA, and ESMA – the ESAs), in collaboration with the European Central Bank (ECB), have published the results of the “Fit-For-55” climate scenario analysis. The assessment concludes that while transition risks alone are unlikely to destabilize the EU financial system, combining these risks with adverse macroeconomic shocks could amplify losses and disrupt the green transition.
The study underscores the need for a coordinated policy approach to financing the green economy and calls for financial institutions to integrate climate risks into their risk management frameworks. Conducted at the European Commission’s request, the analysis evaluates the impact of the Fit-for-55 package on banking, insurance, pensions, and investment funds. This legislative package is central to achieving the EU’s goals of cutting emissions by 55% by 2030 and reaching climate neutrality by 2050.
Scenarios and Key Findings
Three scenarios were analyzed:
Baseline: Smooth implementation of Fit-for-55.
Adverse 1: “Run-on-Brown” shocks, where investors abandon carbon-intensive assets, disrupting financing for their transition.
Adverse 2: Combined “Run-on-Brown” shocks and broader macroeconomic stress.
Under Adverse 1, first-round losses across sectors ranged from 5.2% to 6.7%, with investment funds experiencing second-round losses of 11.2%.
In Adverse 2, losses escalated to 10.9%-21.5%. Mitigating factors such as banks’ income, insurers’ liabilities, and investment funds’ liquidity buffers are expected to absorb some impacts.
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