Stranded Assets: Environmental Drivers, Societal Challenges, and Supervisory Responses

Abstract

Environment factors, particularly those related to climate change, are stranding or could strand assets across different sectors and geographies with significant implications for economies, companies, financial institutions, communities, and workers. In this review, we focus on physical climate change, biodiversity loss, and litigation related to environmental factors as causes of stranded assets. We also review the emerging literature on the consequences of asset stranding for society before turning to some of the key supervisory responses that are emerging to ensure that stranded assets are measured and managed, particularly by financial institutions. These are among the areas of the stranded assets literature that have been growing most rapidly since 2015, and we focus on the literature produced since then. Expected final online publication date for the Annual Review of Environment and Resources, Volume 46 is October 2021. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

Assets and infrastructures

“…Here, an infrastructural gaze could help unpack how, much like infrastructures that become visible upon collapse (Star & Ruhleder 1996), the threat of carbon deassetization lays bare how inequalities and relations of expropriation have been made durable and obscured in a layered asset economy (Bernards & Campbell-Verduyn 2019;de Goede 2020). Not surprisingly, owners of carbon assets leverage their legal affordances to address the threat of devaluation (Caldecott et al 2021), or use their power resources to mobilize significant compensation from governments (Furnaro 2023).…”

Financial stability, stranded assets and the low‐carbon transition – A critical review of the theoretical and applied literatures

“…Stranded capital designates production assets that will lose value or require costly reconversion (Hambel et al, 2020). Caldecott et al (2021) extend the definition beyond carbon assets to encompass biodiversity losses, broader climate damage and environmental litigation issues. Expected losses on stranded resources and capital imply stranded paper, i.e., devaluations on the asset side of financial companies' balance sheets (Curtin et al, 2019).…”

The challenge of phasing out fossil fuel finance in the banking sector

“…While the risk of fossil fuel assets becoming 'stranded', i.e., devalued through concerted policy action, is perceived as a long-term risk [11][12][13] , there is a continuing nancial incentive for banks to hold short/medium-term investments in fossil fuel assets, particularly due to their ongoing exposures to the sector and relative insensitivity to climate-focused shareholder pressure. Indeed, the 'carbon premium' banks have priced into fossil fuel loans since the Paris Agreement is small relative to stock markets 14,15 .…”