Consultation on Joint European Supervisory Authorities (ESAs) Guidelines on ESG Stress Testing

We refer to the joint consultation on Guidelines on ESG Stress Testing by the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, together the European Supervisory Authorities (ESAs). We welcome the efforts to harmonise the integration of ESG risks into supervisory stress testing activities and to enhance coordination between supervisors across different financial sectors.

Norges Bank Investment Management (NBIM) is the investment management division of the Norwegian Central Bank and is responsible for investing the Norwegian Government Pension Fund Global. NBIM is a globally diversified investment manager with USD1,739 billion at 31 December 2024 invested in over 8,000 companies, including listed financial institutions supervised by the ESAs and relevant competent authorities. As a long-term investor, our returns depend on sustainable economic, environmental, and social development, and on well-functioning and efficient markets.

ESG risks demonstrate financial materiality across major asset classes, including equity, and corporate debt. Our exposure spans the entire transmission chain from insurers through to banks and real economy companies. Rising insurance losses may threaten insurer profitability and stability. When insurers withdraw coverage, banks may face weakened collateral and higher credit losses. This could lead to real economy companies bearing higher capital costs, reduced property values, and uninsurable risks which may impact our equity returns.

NBIM emphasizes that supervisors should consider how they incorporate ESG stress test results into supervisory processes and policies. While ESG stress testing is useful to assess the resilience of financial institutions’ capital, liquidity positions, strategy and business model, the results should be used to incentivize rather than penalise climate action. In particular, ESG stress tests should not trigger indiscriminate capital withdrawal from sectors and counterparties that need financing to decarbonize and adapt. Instead, stress tests should encourage financial institutions to engage proactively with counterparties on credible transition and adaptation planning. We adopt this approach in our Climate Action Plan. We believe that our engage-to-change approach will yield the best financial results for the fund and will also contribute to improved real-world outcomes. We engage with the highest emitters in our portfolio on how they can achieve net zero emissions by 2050. We want to support our portfolio companies in delivering long-term financial value and adapting their business models towards achieving this ambition.

Please find in the annex our comments on relevant questions. We thank you for considering our perspective and remain at your disposal should you wish to discuss these matters further.

Yours sincerely,

Carine Smith Ihenacho
Chief Governance and Compliance Officer                                                   

Jeanne Stampe
Lead Policy Advisor