Stranded assets refer to assets that have become or are projected to become obsolete, uneconomical, or non-productive before the end of their expected useful life. These assets can no longer generate the expected economic returns or value due to various factors, such as changes in technology, market conditions, regulations, or societal shifts.

Key Matters and Considerations in ESG

In the context of sustainability and climate change, stranded assets often refer to fossil fuel reserves or infrastructure that may become unburnable or economically unviable due to efforts to mitigate climate change and transition to a low-carbon economy. As the world takes steps to reduce greenhouse gas emissions and limit global warming, there is increasing recognition of the need to leave a significant portion of known fossil fuel reserves untapped to avoid catastrophic climate impacts. This ”carbon budget” concept means that some fossil fuel assets, particularly those in high-cost or environmentally sensitive areas, may not be able to be developed or fully utilized, resulting in potential financial losses for companies and investors.

Stranded assets can also occur in other sectors and industries. For example, changes in consumer preferences, technological advancements, or regulatory shifts can render certain manufacturing plants, infrastructure projects, or even intellectual property obsolete. This can lead to significant write-downs, losses, or reduced valuations for companies and investors who hold these assets.

The concept of stranded assets has gained attention in the financial and investment community as it poses financial risks and uncertainties. Investors and financial institutions are increasingly assessing and disclosing their exposure to stranded assets to better understand and manage potential risks. This includes evaluating the long-term viability of certain investments in fossil fuels or other sectors vulnerable to disruptive changes.

Efforts are underway to address the risks associated with stranded assets. Companies are diversifying their portfolios, investing in cleaner technologies, and transitioning to more sustainable business models. Investors are incorporating environmental, social, and governance (ESG) factors into their decision-making processes and engaging with companies to promote better risk management and sustainable practices.

Overall, stranded assets represent a significant financial and sustainability challenge, requiring proactive management, careful assessment of risks, and strategic planning to navigate the transition to a more sustainable and resilient future.