Introducing sell-by dates for stranded assets: ensuring an orderly transition to a sustainable economy

ABSTRACT

There is growing consensus that, as the world's governments respond to the urgent requirement to transition towards a low-carbon economy, a significant proportion of existing financial assets on the books of insurance companies, pension funds, investment companies and banks will turn out to be worth considerably less than their current valuation and in some cases may become ‘stranded assets’. In this paper we propose a method for using policy tools and legislation to initiate a process of creation and gradual elimination of stranded assets, beginning with carbon-related assets at risk but moving on to those that fail to meet the highest standards on measures of environmental, social and governance factors. This will have the benefit of providing clear signals to markets about how the value of their various ESG risks and related assets will change over time, allowing them to adjust their portfolios to ensure an orderly transition.

KEYWORDS:

• Sustainable finance
• stranded assets
• carbon bubble
• fossil fuels
• European Parliament
• European Commission
• divestment
• climate change
• Paris Agreement

Acknowledgements

Thanks to the European Parliament shadow rapporteurs on sustainable finance especially Sirpa Pietekainen, Paul Tang and Lieve Wierneck. We would also like to appreciate the excellent work being done on sustainable finance by the Commission team headed by Martin Spolc and Barbara Gabor and the commitment shown by Commissioner Dombrovskis. Finally, we would like to thank our Green colleagues Bas Eickhout MEP, Reinhard Butikofer MEP, and Vincent Hurkens.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes on contributors

Molly Scott Cato is Green Party MEP for the South West of England and was previously Professor of Green Economics at Roehampton University in London. Molly was the European Parliament’s rapporteur on Sustainable Finance and is the national speaker on finance for the Green Party of England and Wales. Molly studied Politics, Philosophy and Economics at Oxford University and has a PhD in Economics from the University of Wales, Aberystywth. Molly has written several books including Green Economics (2009), Environment and Economy (2011) and The Bioregional Economy (2012) as well as numerous academic papers on topics including sustainability economics, social enterprise, and co-operatives and mutuals.

Cory Fletcher works with Molly Scott Cato MEP on economics and finance, including sustainable finance. Cory studied International Relations with Politics and Plymouth University and has a Masters in Conflict Resolution and Governance from the University of Amsterdam. Cory has written an academic article about protest against water privatisation in Ireland.

Notes

1 Conflict Minerals Regulation, European Commission, 8 June 2017.