What does the term “stranded assets” refer to?

The term "stranded assets" refers specifically to investments that lose their value due to changes in the market related to climate change. This phenomenon typically occurs when environmental regulations, shifts in consumer preferences, or changes in technology render certain assets obsolete or undervalued. For example, fossil fuel reserves might become stranded assets if global policies move towards decarbonization and away from carbon-intensive energy sources. As the transition towards a more sustainable economy accelerates, assets that are heavily reliant on fossil fuels or other non-renewable resources face significant financial risks, leading to drastic reductions in their market value.

This concept highlights the financial implications of climate change and the importance for investors and companies to account for potential shifts in asset valuations over time, particularly as the global economy becomes more focused on sustainability and environmental protection. Understanding stranded assets enables stakeholders to better assess risks and make informed decisions regarding investments and resource management in a changing market landscape.