What is a stranded asset. Per Lloyds,
www.lloyds.com/…
Stranded assets are defined as assets that have suffered from unanticipated or premature write-downs, devaluation or conversion to liabilities. In recent years, the issue of stranded assets caused by environmental factors, such as climate change and society’s attitudes towards it, has become increasingly high profile.
Changes to the physical environment driven by climate change, and society’s response to these changes, could potentially strand entire regions and global industries within a short timeframe, leading to direct and indirect impacts on investment strategies and liabilities.
Due to the impacts of climate change and the transition to renewables stranded assets will become an increasing problem for not only those industries who own said assets, but those who are invested in those industries. And unfortunately the vast majority of the public that have retirement accounts are indirectly invested in these industries. www.forbes.com/...
Alexandra Wright-Gladstein: Over 80% of Americans are worried about climate change, but 99% of Americans with retirement savings are invested in the fossil fuel industry. Most people - over 80% - don’t realize that they are invested in fossil fuels, and the majority are not happy when they find out.
In addition to the efforts by organizations such as Sphere (www.google.com/...), mentioned in the Forbes article, could we also apply a carrot to the fossil fuels industry to “self divest”, and redirect their capital to renewables by incentivizing the buyback of offshore oil leases by providing offshore wind leases in their place.
Between insurances companies realization of the current and increasing costs of climate change, and the impacts that realization is having on the costs of insurance, we may have an opportunity to limit the negative consequences of stranded assets and help accelerate the shift of capital from fossil fuels to renewables. www.mckinsey.com/...
Stakeholders—such as customers, shareholders, and regulators—are therefore likely to demand that insurance solutions go beyond traditional risk transfer to explicitly address risk mitigation. These risks can be either physical, directly affecting the insurance business, or transitional, affecting insurers’ portfolios as assets are repriced. Insurers should seize this moment to stress-test their exposure to climate risk and rebalance their portfolios. Perhaps more importantly, insurers should use their understanding of risk to help organizations mitigate and adapt—and thus protect a greater share of the global economy. In particular, the industry should develop products that cover climate-related risk specifically and should revisit its (potentially carbon-intensive) investment strategies. The effects of climate change are already here, and efforts to respond at scale will take time. With the long-term viability of the industry at stake, insurers should act now.
The idea I’m proposing is that we provide incentives for existing lease holders of offshore oil assets to trade in their oil leases for offshore wind leases. This would have the dual benefit of helping keep existing fossil resources in the ground and help limit the negative impacts of stranded assets. I don’t care as much about the negative impacts this has on the fossil fuel industry directly, but on the negative impacts the devaluation of those assets will have on the majority of Americans who have money invested in their retirement accounts.
This sort of program could be a win-win in that we reduce the risks of the impacts of stranded assets, we help keep current fossil resources in the ground and we provide a framework that could help accelerate the reallocation of capital from fossils to renewables.