The European Securities and Markets Authority has published a Call for Evidence on climate risk stress testing for EU central counterparties. Responses should be submitted by April 21, 2022.

ESMA already conducts stress testing for EU CCPs in other areas, including credit exposure, liquidity stress testing, concentration risk and operational risk. The proposed climate risk stress tests are being developed as part of the EU's wider efforts to improve the resilience of the EU financial sector to climate-related risks and contribute to sustainability. ESMA's proposals establish four pillars of climate risk relevant to CCPs: physical risk (e.g., higher frequency and intensity of weather-related hazards); transition risk (i.e. the policy, legal, technological and market changes that arise to manage climate change); business risk (i.e., gradual changes in products or services) and collateral replacement risk (i.e., the need for additional collateral to be posted to compensate for a decline in the value of "brown" assets). ESMA then proposes how to model and parameterize each type of climate risk for an EU-wide stress test.

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