November 22, 2021 Read More →

Trillions of fossil assets potentially stranded, accounting battles loom

Wall Street Journal ($):

At the end of 2019, General Motors Co. announced a $1 billion investment to produce a new generation of Chevrolet Colorado and GMC Canyon pickup trucks at its factory in Wentzville, Mo.

Just over a year later, GM said it would go all electric by 2035. Analysts are worried that some of the new Wentzville machinery could end up on the scrap heap, adding to a multitrillion-dollar pile of assets that will lose value as the country shifts away from fossil fuels.

“I ask on the calls, ‘where are the write-downs?’” said Adam Jonas, an automotive analyst at Morgan Stanley.

Nearly 200 countries at the U.N. climate conference this month in Glasgow agreed to curb their use of fossil fuels to address global warming. The result, scientists say, would stave off the worst impacts of rising temperatures. For businesses, the shift—and climate change itself—raises the risk that trillions of dollars of assets will become worthless.

The losses would be caused by so-called stranded assets. These range from coal-fired power plants shutting down before the end of their useful lives to buildings hit with repeated floods to farmland suffering from prolonged drought. Any asset that is producing less than expected because of climate change or rules set up to limit climate change could be a candidate for a write-down.

The fight over the accounting rules on climate-related write-downs could be one of the biggest battles in corporate finance in decades.

[Jean Eaglesham and Vipal Monga]

More: Trillions in Assets May Be Left Stranded as Companies Address Climate Change

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