What Are Stranded Assets and How Will They Leave You in the Cold?

If you hold investments in fossil fuels and deforestation in your retirement portfolio, your financial future may be at risk when climate-destroying companies lose value and their stocks become stranded assets.

Josie Moore

Your retirement plan is supposed to be your assurance that you will be able to support yourself financially after you stop working. But if it includes investments in industries that are fueling the climate crisis, you may find your retirement savings left behind. 

According to Carbon Tracker Initiative, stranded assets are investments that will not be able to provide their once-expected economic return due to shifts towards a carbon-neutral economy, and Lloyd’s, a global insurance marketplace, defines them as investments that “have suffered from unanticipated or premature write-downs, devaluation or conversion to liabilities.”

What Does This Mean? 

Consider, for example, Blockbuster Video and Netflix. Fifteen years ago, if someone asked you which of these companies is the better investment, you may have said Blockbuster. After all, their locations were everywhere, they had been around for a while, and their business model was familiar and made sense. Netflix, however, seemed new and untested. Its business model was experimental, and we couldn’t be sure that their vision of the market’s future would align with what consumers would want. 

While hindsight is 20/20, fifteen years ago, you couldn’t have known that if you kept Blockbuster stocks in your investment portfolio, soon they would be stranded assets—stocks in a company that didn’t innovate, didn’t adapt, and got left behind by a changing world. 

It doesn’t take a soothsayer to see the future of companies whose business model is firmly rooted in the burning of fossil fuels and the destruction of our ecosystems. They have refused to adapt to our world’s changing needs, and to maintain a livable planet, there is no alternative but to transition to a clean-energy economy.

What Does This Mean for You

You—like millions of other Americans—have 401(k) or 403(b) retirement plans set up by your employer. Most employers offer a range of fund choices, and you can decide how much you want in different kinds of funds, such as higher, moderate, and low-risk plans that each offer a diversity of stocks and bonds. 

But few people know which specific companies they are actually invested in. And it can be very difficult to find out. You might learn how much is invested in different sectors or the ten companies with the most shares in the fund, but trying to find the full list is nearly impossible. Your company works with an asset manager that decides on your behalf what companies each fund invests in, and this makes up your long-term investment portfolio.

If your company’s asset manager offers no climate-safe retirement funds, then you likely own stocks in companies that drive the continued burning of fossil fuels and global deforestation. And even if your employer does offer a climate-safe fund option, your retirement investments are likely not currently in them. Very few companies offer climate-safe funds as their default option, and only about one-third of investors opt for a fund that is not the default.

Is Your Financial Future at Risk?

BlackRock, the world’s biggest asset manager, acknowledges that the impacts of climate change pose risks to investors’ portfolios. And yet BlackRock, along with other major asset managers such as Vanguard and Fidelity, isn’t heeding its own public statements about the financial risks of stranded assets. The largest asset managers continue to invest their clients’ money in fossil fuels, deforestation, and other industries responsible for the climate crisis.

Americans are particularly at risk of seeing their financial futures jeopardized. A recent study found that individual investors in the U.S. own over $300 billion in risky fossil fuel assets. When asset managers put these investments in our retirement funds, it’s individual investors—like us—who bear the risk. In fact, in the U.S., individuals own 86% of the potentially stranded assets.

As our world transitions to a clean-energy economy—which our leaders agree is necessary and inevitable—stock values for fossil fuel and deforestation companies will plummet. And so will your financial bottom line if these stranded assets are still sitting in your portfolio.

What Can You Do?

It’s up to us—the people who actually own these investments—to work together to create truly climate-safe investment options. 

If you want to ensure that your retirement plan won’t leave you in the financial cold as our world shifts to a clean-energy economy, get involved with WorkforClimate. Our network of support and resources will help you advocate for a climate-safe retirement plan to be the default option at your company.

Ready to start working for climate at your company by advocating for climate-safe retirement funds? Email our WorkforClimate U.S. Campaign Manager to get you started with guidance, support, and resources as you go.

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