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Linking climate change to stranded assets is 'gimmick,' banking official says

The idea that climate change alone could leave companies with stranded assets is a "gimmick" aimed at making businesses and investors think about the issue from a financial perspective but ignores the likelihood that market dynamics and other factors played a bigger role, said a sustainability official at JPMorgan Chase & Co.

Investors in publicly traded companies have in recent years increased their push for companies in their portfolio to assess, disclose and address the financial, regulatory and physical risks of climate change and the transition away from high-emitting assets.

Within that discussion, the stranded-asset idea assumes that the shift to a low-carbon economy, as envisioned under the Paris Agreement on climate change, could leave companies with high-emitting assets such as coal-fired power plants that have become unprofitable. In the financial realm, an asset is considered stranded when its value unexpectedly drops suddenly or before the end of its life and a company has to write it off as a loss on its balance sheet.

"It's a brilliant concept ... as a re-framing of the climate debate from pictures of polar bears to pictures of balance sheets," said Matt Arnold, global head of sustainable finance at JPMorgan Chase.

While the concept is on the right track, it leaps too quickly to the assumption that climate change and the carbon emissions from the asset is the cause, he said March 23 at a climate conference at The Fuqua School of Business at Duke University. Decisions on stranded assets are local and regulatory actions, he said. "It's not a question of the greenhouse gas intensity of the underlying asset."

He acknowledged that some assets may be stranded but added that it is important to "run the numbers around that and know why. ... It can be because of other market dynamics." For example, coal mines in Central Appalachia are being stranded, not because of climate change, but because natural gas is so much cheaper, he said.

Arnold noted that a number of financial institutions have started to pull back from coal companies and related assets. "That's a direct acknowledgment that coal is and should be on the decline."

However, he said, the world cannot achieve the goals of the Paris accord to limit global warming temperatures to 2 degrees C from pre-industrial levels without fossil fuels. As a result, "we have to be responsible financiers and developers of fossil fuels alongside of the transition to cleaner energy."