STRANDED ASSETS AND THE FINANCIAL SYSTEM
Andreas A. Papandreou
National and Kapodistrian University of Athens
Abstract
There has been a burgeoning interest and literature on the risks associated with stranded assets. This paper aims to present an overview of this literature with a focus on the risks to the financial system associated with stranded assets and why these risks need to be a concern to central banks. It considers various definitions of stranded assets and its expanding scope while focusing more narrowly on climate-related risks and how these affect the financial system. Two main channels of climate-related risks are discussed in depth: risks of physical impacts from climate change and risks associated with the transition to a low-carbon economy. Reasons why the financial system may inadequately account for these risks are presented along with corrective policies on the part of investors and central banks. The paper also considers the special challenges and threats to financial stability associated with the historically unique sustainability transition needed to achieve the targets set by the Paris Agreement.
Jel-classification: G2, Q54
Keywords: stranded assets, climate change, financial stability
Acknowledgements: The authors acknowledge financial support from the Bank of Greece. We would like to thank the Research Department of the Bank of Greece for discussions and comments on earlier versions of this paper. Any errors are the responsibility of the authors.
Correspondence: Andreas Papandreou
National and Kapodistrian University of Athens
Sofokleous 1,
Athens 10559, Greece
email: apapandreou@gmail.com