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FIA addresses climate risk in derivatives market

Source: FIA

FIA today published a new policy paper in consultation with its members across the cleared derivatives industry on climate-related risks for financial markets and the global economy.

The paper, "How derivatives markets are helping the world fight climate change," focuses on how the industry is already addressing this issue, and highlights potential partnerships with the public sector to help build a more sustainable economy in the long term.

"FIA and its members know that climate change poses a serious risk to the global economy. To help manage these risks, the regulated derivatives markets have already developed innovative products and trading platforms to help the world transition to a low-carbon future," said Walt Lukken, FIA's president and CEO. "Market-based solutions have proven to be essential in the initial global response to climate change, and FIA encourages policymakers to leverage the power of markets and private innovation in building a more sustainable global financial system and economy."

Specifically, FIA highlights three key areas of partnership and opportunity:

Innovation: Innovations in derivatives markets, such as carbon trading platforms, help market participants discover prices for commodities that are vital to addressing climate change concerns. Exchanges, working in partnership with market participants, are quickly identifying new products that assist in sustainability efforts.

Standardization: Industry-developed best practices and standards, such as sustainable sourcing for metals in physically delivered commodity contracts, highlight the importance of collaboration among market participants and leveraging industry expertise.

Harmonization: In a fragmented global regulatory environment, it is crucial for the public and private sectors to work together to ensure laws and regulations avoid unnecessary conflicts and incentivize market-driven solutions.

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