Document summary
Stranded assets are those that lose value or turn into liabilities before the end of their expected
economic life. In the context of fossil fuels, this means those that will not be burned – they
remain stranded in the ground. We believe the risks of this occurring are growing.
Stranded by climate change regulation: The stranded assets debate stems from the idea
that, because burning available fossil fuels would mean breaching the 2°C globally-agreed
temperature goal, regulation to tackle CO2 would curb fossil fuel use. Coal assets face the
greatest regulatory risks. The EU Plant Combustion Directive and US Clean Air Act, for
instance, have targeted coal-fired power.
Stranded by economics: Oil price falls last year reinforced and widened the debate from
coal to oil and gas by bringing an economic angle. Oil types such as oil sands and shale
oil break even at USD80 per barrel or higher and assets have become loss-making.
Globally, the market value of oil and gas companies has dropped by over USD580bn in
the last nine months.
Stranded by energy innovation: Going forward, we think the risks of fossil fuel asset
stranding could come from energy efficiency and advancements in renewables, battery
storage and enhanced oil recovery. These drivers would impact demand for some fossil
fuels, but while the timing of such structural events is difficult to predict, the challenge
facing investors is to devise a strategy around the stranded assets theme that captures both
climate commitment and fiduciary duty.