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Stranded Assets - Revision history
2024-03-29T08:00:19Z
Revision history for this page on the wiki
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https://www.openriskmanual.org/wiki/index.php?title=Stranded_Assets&diff=37877&oldid=prev
Wiki admin at 11:19, 11 March 2024
2024-03-11T11:19:45Z
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https://www.openriskmanual.org/wiki/index.php?title=Stranded_Assets&diff=35492&oldid=prev
Wiki admin at 15:47, 15 January 2023
2023-01-15T15:47:18Z
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https://www.openriskmanual.org/wiki/index.php?title=Stranded_Assets&diff=35120&oldid=prev
Wiki admin at 10:59, 11 May 2022
2022-05-11T10:59:58Z
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Wiki admin: /* See also */
2020-09-17T13:18:07Z
<p><span dir="auto"><span class="autocomment">See also</span></span></p>
<p><b>New page</b></p><div>== Definition ==<br />
'''Stranded Assets''' is an ''informal'' term that refers to [[Asset | assets]] that have suffered from unanticipated or premature [[Write-Off]] or revaluation. Stranded Assets are one of the main contributors to [[Sustainable Finance Risks]]<br />
<br />
== Risk Profile ==<br />
Stranded assets can be generated via a number of economic, technological, cultural or political processes (which may be overlapping). In terms of the [[Risk Taxonomy]] stranded assets are associated primarily with the following risk categories<br />
* [[Business Model Risk]]: <br />
** the risk that the value proposition of the firm via its products or services is no longer considered attractive by its clients <br />
** the risk that competitors of a firm will develop alternative business models for delivering similar or equivalent products or services. Whether such a development produces material risk of stranded assets depends on whether the business model is asset intensive. <br />
* [[Political Risk]]: the impace new government regulations (e.g. new health policies, pollution regulation)<br />
* [[Legal Risk]] (e.g. tobacco, carbon liability) and changing statutory interpretations (e.g. fiduciary duty, disclosure requirements)<br />
<br />
== Valuation Challenges ==<br />
In financial terms, not only is the payback time of the asset curtailed, acceleration of decommissioning liabilities also increases their net present cost. When decisions result from changes to government legislation, liabilities exceeding decommissioning provisions accumulated over the asset's useful life may need to be shouldered by the tax payer, as opposed to the owner/operator. <br />
<br />
=== Risk Management Implications ===<br />
* The creation of sizeable stranded assets may affect the viability of entire sectors leading to business closures and/or [[Bankruptcy]]<br />
* Stranded Assets cause potentially [[Systemic Risk]] to the degree that entities within financial services might be material exposed to the associated write-offs<br />
<br />
== Examples ==<br />
<br />
=== Fossil Fuels ===<br />
The term Stranded Asset is most frequently used in connection with fossil fuel resources such as<br />
* Coal, Gas and Petroleum Reserves<br />
* Technology around the extraction of such resources<br />
<br />
==== Causes ====<br />
* environmental challenges (e.g. climate change, environmental degradation)<br />
* resource depletion<br />
* falling renewable / clean energy costs<br />
* evolving social norms and consumer behaviour towards the value of the physical environment<br />
<br />
<br />
In the context of [[Climate-Related Risk]], stranded assets are and expression [[Climate-Related_Risk_Taxonomy#Transition_Risk Transition Risk]]<br />
<br />
=== Nuclear Power Plants ===<br />
Decommissioning of nuclear power stations ahead of their useful lifecycle (e.g. as decided by the German government)<br />
<br />
==== Causes ====<br />
Changing public attitudes after the Fukushima Daiichi nuclear disaster in Japan <br />
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=== Electric Power Generation ===<br />
An existing electric power utility makes substantial investments in infrastructure that generates electricity using a variety of methods (e.g. burning coal). [[Stranded Costs]] represent such infrastructure investments that may become redundant after substantial changes in regulatory or market conditions. <br />
<br />
=== Digital Technology ===<br />
Technology change may cause other stranded assets, for example the [[Intellectual Property]], associated Research and Development and Production investments,<br />
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==See also==<br />
* [[Glossary of Sustainable Finance]]<br />
* [[Stranded Costs]]<br />
* [[Stranded Liabilities]]<br />
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<br />
[[Category:Systemic Risk]]<br />
[[Category:Sustainable Finance]]</div>
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