Stranded assets

The built environment is very complex with multiple stakeholders, long lead times, massive investments and capital risks. One of the key challenges that can be foreseen in adopting a circular economy is the creation of stranded assets.

An asset is an ‘…item, thing or entity that has potential or actual value to an organisation’. Stranded assets are items, things or entities that have suffered from unanticipated or premature write-downs, devaluation or conversion to liabilities, whether that is due to changes in market forces, disruptive innovation, societal norms, environmental parameters or some other unforeseen factor.

The related term, stranded resources, describes resources (rather than assets) that are considered uneconomic for the same reasons as stranded assets. A resource is a source or supply of assets that can be drawn on by a person or organisation and from which a benefit is derived.

According to the Carbon Tracker Initiative, stranded assets have been interpreted as encompassing a range of different factors, including:

Changes in policy or legislation resulting in regulatory stranding.
Changes in relative costs/prices resulting in economic stranding.
Changes in distance/flood/drought resulting in physical stranding.

With the adoption of the Sustainable Development Goals (SDGs) and the Paris Agreement, the issue of climate change has been raised in relation to sustainable economic development and stranded assets.

In the context of the circular economy, stranded assets could be those assets that are most at risk of becoming stranded through the energy transition as society looks to restrict global warming. These assets do not fit into the circular economy, since it may be too costly to preserve them in a manner that is environmentally sensitive.

NB Delivering Net Zero: Key Considerations for Commercial Retrofit, published by the UK Green Building Council on 4 May 2022, defines stranded assets as: ‘assets that have suffered from unanticipated or premature write-downs, devaluation or conversion to liabilities. In recent years, the issue of stranded assets caused by environmental factors, such as climate change and society’s attitudes towards it, has become increasingly high profile.’ Ref LLoyd’s (2017), Stranded Assets: the transition to a low carbon economy, Overview for the insurance industry.

Global Warming of 1.5 ºC, Glossary, published by the Intergovernmental Panel on Climate Change (IPCC) in 2018, defines stranded assets as: ‘Assets exposed to devaluations or conversion to ‘liabilities’ because of unanticipated changes in their initially expected revenues due to innovations and/or evolutions of the business context, including changes in public regulations at the domestic and international levels.’

In the context of the Building Safety Act, "stranded assets" refer to buildings or properties that have become economically or functionally obsolete or unviable due to safety concerns or regulatory changes related to building safety. The term typically applies to properties that are affected by new safety regulations or requirements introduced by the Building Safety Act or other legislation aimed at improving building safety standards.