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Definition

Stranded asset

A stranded asset loses economic value or usefulness before the end of its expected life because policy, technology, markets, or physical conditions change.

What is a stranded asset?

A stranded asset loses economic value or stops earning its expected return before its planned end. It may still operate, but policy, technology, demand, operating costs, or a climate hazard can make continued use uneconomic.

ESRS E1 AR 73(a) uses a narrower disclosure definition. It covers key assets that are already operating, or are likely to be put into use within five years, and would lock in significant GHG emissions over their operating lives.

Why does a stranded asset matter to you?

Investors, lenders, and auditors may ask which assets are vulnerable, when the risk could arise, and their carrying amounts, meaning the values recorded in the accounts. IFRS S2 paragraph 29(b)-(c) asks for the amount and percentage of assets or business activities vulnerable to transition and physical risks. If you ignore the risk, you may keep an unrealistic useful life or rely on cash-flow and capital-spending assumptions that no longer hold.

How do you assess a stranded asset?

List the carrying amount, remaining useful life, expected cash flows, and retirement date. Test dated policy, technology, demand, energy-cost, and physical-risk scenarios. Record when use falls, whether retrofit or sale is feasible, and which accounting test applies. Exposure is not an automatic write-down.

What mistakes should you avoid?

  • Calling every high-emitting asset stranded without a dated loss mechanism.
  • Reporting replacement cost instead of the asset's carrying amount.
  • Ignoring physical hazards because the asset has low direct emissions.
  • Presenting a scenario result as a booked impairment.

Is a stranded asset the same as an impaired asset?

No. Stranding is the risk that an asset will lose value or usefulness early. An impairment is a recorded reduction in value after the applicable accounting test shows that the asset cannot recover the amount shown in the accounts.

What should you keep when an investor asks?

Keep the fixed-asset register, carrying amount, depreciation schedule, remaining life, scenario assumptions, policy or market trigger, cash-flow model, retrofit and sale options, impairment review, and approval record.

Example

Suppose a hypothetical agricultural cooperative in Sweden bought a diesel grain dryer for SEK 3,000,000 on 1 January 2024. It assigned a 15-year useful life, no residual value, and straight-line depreciation. A 2028 market scenario assumes key customers will stop buying crops dried with fossil fuel from 1 January 2030, and the cooperative finds no feasible retrofit or resale option.

Annual depreciation is SEK 3,000,000 / 15 = SEK 200,000. After six years, the carrying amount on 31 December 2029 is SEK 3,000,000 - (6 x SEK 200,000) = SEK 1,800,000, with nine planned years unused. That amount is exposed to possible stranding, not an automatic SEK 1,800,000 impairment. The cooperative must apply its accounting policy to decide whether the market change requires an impairment test and whether any write-down should be recorded.

Where it comes up

IFRS S2 assets or business activities vulnerable to transition and physical risksIFRS S2 paragraphs 29(b)-(c)Official sourceESRS estimate of potentially stranded assets by amount and percentageESRS E1 paragraph 67(a) and AR 73(a)Official source

Related terms

Climate-related transition risk

Climate-related transition risk is the financial risk that policy, legal, technology, market, or reputation changes create as economies move towards lower greenhouse gas emissions.

Physical climate risk

Physical climate risk is the potential for acute events or chronic climate shifts to damage assets, interrupt operations, disrupt supply chains, and change revenue, costs, cash flows, financing, or insurance.

Climate-related financial effects

A climate-related financial effect connects a climate risk or opportunity to a specific consequence for financial position, financial performance, or cash flows in the reporting period or a defined future horizon.

Climate scenario analysis

Climate scenario analysis tests how your strategy, business model and financial performance could change under several plausible climate futures, including physical hazards and policy, market and technology shifts.

Sources

  • IFRS Foundation and International Sustainability Standards Board

    IFRS S2 paragraphs 13-22 and 29(b)-(c) on asset concentrations, financial effects, scenario analysis, and assets vulnerable to transition and physical risks

    2026-08-21

  • European Commission

    ESRS E1 paragraph 67(a) and AR 73(a) on estimating potentially stranded assets, the five-year firmly planned test, and the 2030 and 2050 horizons

    2026-08-21

  • IFRS Foundation

    IAS 36 impairment indicators, carrying amount, recoverable amount, and recognition of an impairment loss

    2026-08-21

Last verified 2026-08-21

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Stranded asset Definition | Keslio