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

Abstract

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.