Stranded Assets: A Climate Risk Challenge

Nov 2016
Rios, Ana R.
Over the last few years, the topic of "stranded assets" resulting from environment-related risk factors has loomed larger. These factors include the effects of physical climate change as well as societal and regulatory responses to climate change. Despite the increasing prominence of these stranded assets as a topic of significant interest to academics, governments, financial institutions, and corporations, there has been little work specifically looking at this issue in Latin America and the Caribbean (LAC). This is a significant omission, given the region's exposure to environment-related risk factors, the presence of extensive fossil fuel resources that may become "unburnable" given carbon budget constraints, and the particular challenges and opportunities facing lower-income and emerging economies in LAC. This report seeks to contribute to closing this gap in the literature. We provide an in-depth summary of existing literature, exploring the key issues relating to stranded assets through an analysis of three areas:
1. Understanding systemic climate risks: implications for the financial sector and lessons for central banks and financial regulators
2. Stranded assets and development: ensuring low carbon development pathways are resilient to asset stranding
3. Investor exposure to stranded assets: managing investments and portfolios exposed to environment-related risks.