Stranded fossil-fuel assets translate to major losses for investors in advanced economies

The necessary and rapid transition to a low-carbon economy will lead to massive stranded assets, which could risk the stability of financial markets and the economy. Through a global equity network, most risk and responsibility is owned by investors, such as pension funds, in developed countries. The distribution of ownership of transition risk associated with stranded fossil-fuel assets remains poorly understood. We calculate that global stranded assets as present value of future lost profits in the upstream oil and gas sector exceed US$1 trillion under plausible changes in expectations about the effects of climate policy. We trace the equity risk ownership from 43,439 oil and gas production assets through a global equity network of 1.8 million companies to their ultimate owners. Most of the market risk falls on private investors, overwhelmingly in OECD countries, including substantial exposure through pension funds and financial markets. The ownership distribution reveals an international net transfer of more than 15% of global stranded asset risk to OECD-based investors. Rich country stakeholders therefore have a major stake in how the transition in oil and gas production is managed, as ongoing supporters of the fossil-fuel economy and potentially exposed owners of stranded assets.

Automated summary

The necessary transition to a low-carbon economy could lead to massive stranded assets, posing risks to financial markets and the economy. Ownership of transition risk associated with these assets is largely unknown. Global stranded assets in the oil and gas sector could exceed $1 trillion in lost profits, with most of the risk falling on private investors in OECD countries.