Building Transition-Ready Business Portfolios

Stranded assets – those that lose economic value before the end of their expected life – are becoming increasingly common across sectors. Stricter climate policies, emerging technologies and shifting consumer preferences together are rendering a growing set of assets obsolete. From coal-fired plants and petrol stations to outdated telecom infrastructure and retail spaces, businesses are facing the financial and strategic consequences of stranded capital. 

The International Energy Agency (IEA) estimates that over USD 1.3 trillion in fossil fuel assets could be stranded by 2050 under net-zero pathways. But the issue extends far beyond fossil fuels, or climate more generally. Legacy banking systems, copper-based telecom networks and even commercial real estate are at risk as digitalisation, behavioural shifts and policy developments transform what is considered viable. The implications are significant: impairments, diminishing returns and declining valuations. In response, businesses are beginning to act by writing down at-risk assets, reassessing long-term capital plans and reallocating investment toward more future-resilient business models.   

More than Just a Climate Issue

Stranded assets are not a new phenomenon but climate policy has amplified their urgency and broadened their relevance across sectors. The risks are multi-dimensional, with technological, regulatory, market and geopolitical disruptions creating complex and interlinked pressures. 

• Policy and regulation is the primary driver shaping asset viability. In the UK, a carbon price floor helped cut coal’s share in power generation from 40% in 2012 to under 1% by 2023. Germany and South Korea have accelerated coal phase-outs while China has shut down hundreds of smaller plants. In India, where carbon pricing is nascent, ESG disclosure mandates and an emerging green taxonomy are influencing capital flows, nudging finance away from high-emissions sectors. Indicatively, ESG-themed mutual fund AUM quadrupled from 2019 to 2023, and sustainable debt issuance nearly tripled between 2021 and 2024. 

• Technological disruption is accelerating obsolescence. Automakers are phasing out internal combustion engine (ICE) manufacturing lines in favour of EVs. Digital-first banking, UPI and AI-based customer servicing are reducing the relevance of physical bank branches. Copper networks are being replaced by fibre and 5G, driving widespread decommissioning. These shifts may force early asset write-downs, especially in capital-intensive sectors. 

• Consumer behaviour and market shifts are also undermining asset models. The explosive growth of e-Commerce is reducing footfalls and/or turnover in traditional malls, leading some properties to be repurposed. Urban consumers are moving towards shared mobility and EVs, straining the viability of petrol stations, car dealerships and even car parks. Circular economy models – such as fashion resale or equipment leasing – are also altering demand patterns. 

• Geopolitics and trade tensions compound the risks. The Russia-Ukraine war prompted Europe to diversify away from Russian gas, rapidly stranding pipeline infrastructure. Nearshoring and reshoring policies are undermining long-term prospects for low-cost manufacturing in export-driven economies. 

These forces interact strongly with each other, but the lesson for business is clear: stranded asset risks are real, multi-causal and accelerating. 

How Countries and Institutions are Responding

Recognising the scale of exposure, governments and other institutions are starting to respond. In the realm of climate policy, the European Union has taken the lead through its Sustainable Finance Taxonomy and Corporate Sustainability Reporting Directive (CSRD), tightening access to finance for high-emissions assets, such as gas-fired power plants that fall short of strict thresholds. This is redirecting capital from and increasing scrutiny on fossil-intensive sectors. Tellingly, the European Investment Bank stopping funding unabated fossil projects in 2022. 

More broadly, disruptions such as the Russia-Ukraine war have prompted the EU and America to reassess energy security and industrial supply chains. EU efforts to reduce reliance on Russian gas have driven investments in renewables and LNG, potentially stranding parts of gas pipeline infrastructure. Nearshoring and reshoring policies in both regions are shifting trade flows and creating long-term uncertainty for export-dependent manufacturing facilities in lower-cost geographies.  

In the UK, mandatory climate disclosures aligned with the Task Force on Climate-related Financial Disclosures (TCFD) are influencing bank lending. HSBC, for example, has adjusted client assessments and sectoral exposures in light of transition risks. The US has been slower off the blocks on regulatory action, but investor pressure is growing. Following shareholder campaigns, ExxonMobil now reports asset-level climate risk, while Peabody Energy suffered major divestments due to perceptions that its thermal coal assets were losing value. Meanwhile, Australian and Canadian pension funds are exiting high-carbon sectors, and their banks are stress-testing portfolios for carbon exposure. Singapore and South Korea are helping SMEs modernise legacy IT systems, and European telecoms are decommissioning copper systems. 

India: Laying the Foundations for a Strategic Response

India is at the early stages of recognising stranded asset risk, but change is afoot. A combination of disclosure mandates, policy frameworks and public investment signals is gradually building the foundation for a more strategic response. Key recent policy developments include: 

• BRSR disclosures: These are now mandatory for India’s top 1,000 listed companies, requiring firms to report ESG and transition risks that are tied to asset value. By embedding stranded asset exposure into formal reporting structures, BRSR is effectively pushing companies to identify vulnerable assets and disclose forward-looking risks, changing how markets and investors price and evaluate them. 

• Climate taxonomy: A draft taxonomy released by the Ministry of Finance in 2024 classifies green and transition-aligned activities.  While it does not directly penalise high-carbon assets, it standardises definitions of sustainable activity and identifies what qualifies as ‘green’ – thus setting the stage for a two-speed capital market where aligned assets access more favourable financing terms and misaligned ones (like new coal power or ICE vehicle production lines) face rising capital costs, valuation pressure or early obsolescence. Currently voluntary, this is expected to influence capital costs and investment direction. 

• Carbon Credit Trading Scheme (CCTS): This is under development, but once operational, it will price carbon emissions, embedding climate risk directly into profitability calculations. 

• Public investment: Government support for solar, hydrogen, EVs and battery storage is shifting capital towards future-aligned infrastructure. States like Tamil Nadu and Gujarat are embedding climate considerations into budgeting and project planning. 

These steps are gradually establishing a regulatory architecture to guide capital away from at-risk assets and towards long-term resilience. 

A Strategic Playbook for Business Leaders

Stranded asset risk is certainly a threat, but it can also be a powerful lens for re-evaluating business strategy. Proactive firms can turn it into an opportunity to build more agile, future-proof portfolios, in several ways: 

• Acknowledge valuation risk: Impaired assets weaken balance sheets and invite investor scrutiny. Early recognition of risky holdings can mitigate reputational and financial damage. 

• Balance short versus long-term planning: Strategic capital decisions must account for the potential obsolescence of assets mid-cycle. Planning time horizons are generally shortening, but investment decisions must consider long-term viability. 

• Reassess capital allocation: Some assets may be sunk costs. Rationalising underperforming or high-risk infrastructure is essential to avoid locking in stranded value. 

• Prioritise transition-ready investments: Modular, multi-use and future-adaptable infrastructure reduces exposure to regulatory and market shocks. 

• Lean on scenario planning: Test how different climate or policy pathways could affect asset value. Use best- and worst-case projections to guide timing of divestment and reinvestment. 

• Proactively engage with investors: Transparency on stranded asset exposure and transition strategy builds trust and reduces uncertainty. ESG-conscious stakeholders expect credible forward planning. 

• Strengthen governance: Introduce internal carbon pricing, align asset decisions with external taxonomies and embed cross-functional oversight into investment approvals. 

Managing stranded asset risk demands strategic foresight, governance discipline and the courage to reallocate capital in line with tomorrow’s operating realities. In a fast-changing economy, it is not just about preserving value,  but about securing long-term relevance.