Today, the European Association of CCP Clearing Houses (EACH) publishes its paper on "Climate Risk and CCP Risk Management". In line with their objective of contributing to financial stability, CCPs aim to limit several types of risks, such as credit, market and liquidity risks. Climate risk is now, more than ever an element for CCPs to take into account, as this will enable to CCPs to appropriately adapt their risk management to what is a growing category of risk.
This paper was produced by the EACH Climate Risk Working Group, a sub-group of the EACH Risk Committee, and provides an overview of several aspects of climate risk that CCPs may consider in their risk management frameworks. The below points give an insight as to how to CCPs view can deal with Climate Risk:
- Considering “physical risk” and “transitional effect risks” and how they relate to Stress testing: Physical risks account for the effect a short-term event (such as a natural disaster e.g. a flood) might have on CCP Stress testing, whereas transitional effect risks arise over a longer period than the short time considered for CCP stress testing.
- Micro vs Macro: How metrics can be used to more accurately define the various aspects of Climate Risk management for CCPs.
- Future Business Impact: How CCPs adapt to Climate Risks and continue to provide efficient, robust and safe financial markets in the short and long-term.
For more information, please visit our website www.eachccp.eu