How stranded assets put your pension fund at risk

How stranded assets put your pension fund at risk

The problematic connection between pensions and fossil fuel assets

Theresa Bender

May 30, 2022

·

5

min read

It is the end of may and many employees in Europe and America are starting to feel the effects of inflation in their bank accounts. Money is getting tight. Fortunately, you regularly explore sustainable investments with Cooler Future that will protect you from inflation in the long run.

Good job!

Today we'll look at stranded assets and how they can affect your retirement savings. Be curious, because it affects almost all of us!

Stranded assets (unfortunately) have nothing to do with beaches

Before we delve into the depths of stranded assets and their connection to your pension plan, let's take a step back and look at what stranded assets actually are.

Stranded assets are one of the reasons why sustainable investments are often more future-proof and less volatile than traditional investment opportunities. But why is that?

Let's consider a coal company. It is obvious that at some point it will be relatively difficult for this company to sell its coal-fired power plants, as governments plan to ban them in the future. Scientists have been saying for a long time that fossil fuels are definitely not our destiny and more and more countries are therefore (too) slowly but surely deciding to phase out non-renewable energies. So who would still want a coal-fired power plant, oil production equipment or the like if you are no longer allowed to use them because all countries have switched to renewable energies?

Exactly, nobody.

This phenomenon is called "stranded assets" - assets that you can no longer make use of. Maybe because they are no longer technologically advanced, have been banned or something similar.

On the other hand, companies that pay attention to sustainability are very unlikely to become victims of stranded assets. Thus, sustainable companies are often more secure for the future.

You might be thinking "how many companies have assets like that, that's just a minority". Fair enough.

However, there is research that shows the depth of stranded assets. According to an article published by The Guardian, half of all fossil fuel assets could be affected by a net zero transition in 2036. We're talking $11tn here!

And that's where the pensions come into play.



In a new study, researchers have estimated how strong climate action would affect existing oil and gas projects. The researchers estimated that $1.4 billion worth of oil and gas projects would lose their value if the world took decisive action to cut carbon emissions and limit global warming to 2°C.  

Why?

You've guessed it: stranded assets!

In addition, however, most of the losses would be borne by individuals through their pensions, mutual funds and equity investments! Because, unfortunately, it is precisely these "great" pension funds that often invest in not-so-sustainable projects. Overall, the study calculated that individuals own 54% of the $1.4tn oil and gas assets at risk – so, $756bn.




The Takeaway

The big problem that comes to light here is that many, many people probably don't even know what risk their pensions are exposed to. Who looks at all the projects and companies in which their pension fund invests?

In our opinion, this is not how it should be. We think pension insurance is meant for the future and should therefore also support a sustainable one.

That's why we at Cooler Future only offer funds that have been handpicked by our experts and which we can say with certainty are in line with our values.

Why not use the time at the weekend to take a closer look at your pension provision? Maybe you will be surprised too!

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