The European Systemic Risk Board (ESRB) provided the narrative for this year’s pension funds stress test exercise conducted by EIOPA. The climate risk scenario was developed together with the European Central Bank and relies on an abrupt carbon price increase leading to high transition risk. The shocks are calibrated using the National Institute Global Econometric Model (NiGEM), which provides macroeconomic projections.
Additionally, equity prices and price shocks are also based on NiGEM results using profitability projections at a micro level. Corporate bond spreads, however, are derived through an adjustment to the ECB economy-wide climate stress test model.