Expert view: Stress testing the future: climate risk, regulation and readiness in CEE

Over the past three decades, Forvis Mazars in Romania has grown alongside diverse industries, supporting organisations across sectors as they navigate change, complexity and emerging opportunities.

In a recent study, `Redefining financial frontiers: CEE strategic resilience in banking: outlook 2025`, our colleague Răzvan Butucaru, Partner, Financial Services & Advisory Leader, shares insights into how climate risk management is reshaping the Central and Eastern European (CEE) financial sector.

Drawing on recent regulatory developments and supervisory guidance, this article connects European-level initiatives with regional realities, reflecting Răzvan’s experience supporting banks and insurers through regulatory transformation. This analysis highlights emerging expectations, the challenges of scenario modelling and how institutions can build resilience while navigating increasing scrutiny.

As climate risks intensify across Europe, the CEE financial sector is undergoing a significant regulatory-driven transformation in climate risk management. European authorities, notably the European Central Bank (ECB), EIOPA and national supervisors, are requiring banks and insurers to embed climate considerations into governance, risk modelling and strategic decision-making.

Recent regulatory initiatives highlight the urgency of improving climate resilience. In this context, the ECB-EIOPA joint paper on natural catastrophe risk management underscores the insurance protection gap in the EU and proposes EU-level public-private solutions to enhance coverage and disaster financing. EIOPA’s Climate Guidelines further require insurers to integrate physical and transition risks into ORSA frameworks using forward-looking climate scenarios. At national level, regulators in Poland and the Czech Republic are advancing climate stress testing and supervisory reviews, signalling rising expectations for analytical sophistication across CEE markets.

Climate risk modelling also remains a central challenge. While NGFS scenarios and integrated assessment models (IAMs) provide a common foundation, their limitations - particularly in capturing extreme and non-linear climate impacts - require cautious interpretation. Regulators and industry stakeholders are increasingly encouraged to use multiple models, broaden scenario ranges and strengthen actuarial expertise to avoid underestimating risks. Greater coordination and centralisation of scenario production could enhance comparability and supervisory oversight.

At the same time, the sustainability reporting framework is evolving to balance ambition with practicality. In 2025, the European Commission introduced targeted simplifications to CSRD, ESRS and the EU Taxonomy, including temporary reporting relief for wave one companies, optional materiality thresholds and the postponement or removal of certain reporting waves. These measures aim to reduce compliance burdens while maintaining progress toward transparent and decision-useful sustainability disclosures.

Looking ahead, CEE financial institutions face both challenges and opportunities. Regulators are expected to demand more robust, data-driven climate risk assessments and actionable resilience strategies. Institutions that invest early in advanced modelling, governance integration and regulatory readiness will be better positioned to navigate increasing supervisory scrutiny and contribute to a more climate-resilient European financial system.

Forvis Mazars sees a pivotal moment for CEE financial institutions: those that embed climate risk into governance, modelling and strategy will be better prepared not just to meet regulatory expectations, but to uncover opportunities in an evolving financial landscape and how institutions respond now could define the leaders of tomorrow.

Read here the full view.