Stranded Assets

12 Jul 2023

Growing up in Ontario's automotive rust belt in the 90s and early 2000s, the social fall-out of deindustrialization permeated my life like wildfire smoke. It was everywhere, got into everything. It tinted and shaded how we experienced the world. My father is an engineer and worked in the plants. Until he moved into another sector in the mid-aughts it felt like an ongoing rotation of corporate acquisitions, lay-offs, plant closures.

Economic change is conveniently tidy when watched through the compound eye of a spreadsheet but we’re lying to ourselves when we deny its perverse vitality. It’s morning corn flakes stuff; church basement social stuff. It seeps and settles into how a person moves through every moment of the rest of their life, sometimes for better but mostly for worse.

When I lived in Alberta in 2017-2018, it was hard not to draw parallels. The economic system dynamics of rust belt decline and oil patch boom/bust are quite different, but many of the social tremors feel the same. “Two trucks and a boat” is an understandable but hubristic purchase whether you’re in Tecumseh, Ontario or Fort Mac. The loss of a good breadwinning job can leave a crater in a family. The corporate decision to abandon a place echoes.

A working theory of abandonment is likely an important part of anyone’s toolkit in an era of climate breakdown. I imagine we might expect more abandonment, faster, and in places we might not typically think of as vulnerable.

There’s a phrase from the nexus of the finance, insurance, and energy sectors that I find useful: ‘stranded assets’. Stranded assets are capital investments that for any number of reasons won’t wind up providing their expected return. Regulatory changes, infrastructure gaps, shifting economics, and even broader paradigm change can all strand an asset.

Government regulation, legislation, or direction changes. At the firm end of the spectrum here we might think about a ban on certain activities; at the soft end policy instability without clear direction can do its own work in disrupting the ecosystem of producers and processors such that some assets become stranded.
Expected infrastructure disappears, moves, or doesn’t get built. Any asset you have is just a node in a much larger infrastructural network, invested in to exploit a particular contextual and infrastructural opportunity or advantage. Some nodes are more central to that network than others, and shuttering a given node can strand any number of assets. A failed pipeline, or a closed refinery, can leave other parts of the extraction and processing infrastructure stranded.
The economics just don’t work anymore. Commodity prices wax and wane and sometimes the asset you built that assumed barrels at $X are simply not going to be operable when we’re really looking at $X minus 50%.
The broader system transitions to a new paradigm. Electrification broadly is going to strand a hell of a lot of assets, and a lot closer to home than we might expect – say goodbye to the gas station as we know it, for example, or the gas meter outside your home. What’s wild to me about this one is that there’s a kind of inertial showdown brewing in which electrification is happening more quickly than predicted in a bunch of sectors while at the same time energy producers are still building fossil-fuel assets with multi-decade lifespans that assume that transition won’t happen as quickly as we predicted.

Depending on your priors, you might cheer these incidents of stranding. However, I think these are cautionary tales regardless of your economic preferences – climate change represents a ‘squeeze’ across a whole range of social and natural parameters, and this squeeze may strand assets we like (not just the ones we don’t).

So: here’s some very rough thinking about what stranding and abandonment look like at scale!

The Shape of Stranding

In oil and gas, the kinds of assets being abandoned have a certain materiality, but it doesn’t feel like a stretch to imagine stranding as a process impacting a whole range of asset types:

Physical assets are the most obvious – places and things that no longer fit into the changing economic machine. Factories, landscapes¹, machinery and equipment can all represent significant capital that may fall out of sync.
Implicit almost always in the abandonment of physical assets is a kind of stranding of human capital, too. Specialized skills, whole teams oriented to certain kinds of work, supporting functions stood up in remote places that otherwise have little need for armies of engineers or accountants or HR folks.
In my line of work, I dance across the surface of perhaps the most commonly stranded type of asset: digital assets. “Move fast and break things” is in some ways an exhortation towards abandonment, to embrace the ephemeral nature of the codebase and leave behind whatever pieces aren’t optimized for the business goals of the day. Digital assets are maybe fundamentally different from the other kinds of assets in this list, both for the relative ease with which they can be cast off but also because of the little-reckoned costs of doing so, in terms of stranded user knowledge (when you elect to abandon a UX paradigm, for example) and in terms of the internal human capacity previously dedicated to maintaining that asset.
The last category I have in mind are what I might call ‘synthetic assets’ or ‘pattern assets’ – specific combinations of material, social, intellectual assets into unique and context-specific engines for action. A manufacturing process developed and finetuned over a century with a team of workers who know it well is an asset that can be stranded just as easily as the factory itself. My gut sense is that while “stranded asset” in its original sense mostly refers to physical capital, in practice most acts of stranding or abandonment are in this category.

Regardless of the particular mix of assets we’re imagining, stranding unfolds like any other socio-technical process: messily, and unpredictably. From what I can tell, there’s a rough typology at play across a range of variables or factors.

Systemic vs. localized: The systemic abandonment of a network of stables and farriers with the advent of the automobile is different from the stranding of a set of highway motels when a new controlled-access freeway is built. We might ask questions like “what is the scale of abandonment?” and “how universal is the abandonment taking place?”.
Slow vs. fast: Abandonment can happen all at once, overnight, or gradually, incrementally, begrudgingly. A blanket ban on a particular product or behaviour can trigger near-instant stranding; the implosion of a major player in an ecosystem might trigger a kind of cascading trophic collapse. On the other hand, shifting economics might see capital owners facing ever-shrinking margins, leading them to maintain the asset and bleed it dry (through skeleton staffing, for example) until eventually they shutter it.
Human vs. extrahuman: while the decision to abandon is, in the end, a human decision, the forces driving that decision may not be. Human-driven abandonment stems from upstream decisions we’ve made, about policy, investment, collective permission for infrastructure and so on. Extrahuman is ocean erosion under a rail line, or the silting up of a port or, perhaps, a global pandemic.

For me there’s an unresolved final variable around intent, accident, and agitation. Is a class of assets stranded intentionally by actors in the system? Or did they become stranded inadvertently by other changes or decisions? If the stranding was intentional, was it a carefully-managed and decided transition with the asset owners driving all or at least part of the decision, or was it the outcome a process of aggressive agitation and opposition (as we might envision in the case of a successful pipeline protest)?

A century of stranding

I suspect we might be in for a lifetime of cascading and compounding stranding, multiple layers of abandonment happening at once at different scales and paces. A bewildering kaleidoscope of loss in terms of the products and services and economic models we know and understand today. It will suck.

In what specific ways? I think we’ve already had a taste of it, coming out of the pandemic. Barren shelves in the grocery store, hoarding, supply chain disruption, companies shuttering or changing how and where and when they operate. The shrinking of availability as a harsh rod to coach the parallel shrinking of expectations. Not all of these experiences are truly about stranding and abandonment of assets, but probably the feeling is a little bit similar, as a person at a terminal limb of most systems we’ve collectively built. This, mixed with the kinds of employment disruption I talked about at the start of this post, may map a grim territory for us all to inhabit.

If you’re a person in a position to make decisions about stranding and abandonment, I think you should be clear on the risks that face us.

Front of mind for me is the possibility of losing entire ways of life and work and the expertise that goes with them. Tacit and embodied knowledge represents a shadow asset lurking on the edges of the hard capital assets that we typically don’t think of. Once a society forgets how to do a thing, it might be very difficult to rebuild that knowledge in a way that really matters – documentation only gets you so far.

More acutely felt will be political disruption, which we’re already getting a flavour for. The cascade of stranding and abandonment will feel for many like the system that they implicitly support is no longer working for them, and they will be not be wrong! Left and right populism may well boil forth even more than it already has and quite possibly complicate and accelerate the transitions already happening. It’s a prisoners’ dilemma married to a trolley problem – depending on how you vote you might be flipping a switch that ends your way of life even if it saves others pain in the long run, and no one has a complete picture of the knock-on effects at play.

Finally, I worry about an idea I referred to before: trophic collapse. Trophic collapse refers to a dynamic whereby deletions in a food chain cause the rest of that food chain to collapse as each food source loses its own food source and thus ceases to become available as a source of energy itself. In an economic system sense, losing key lynchpin services or capacities might lead to a broader set of collapses in both local and systemic ways. You see this in a lot of small towns that have lost an anchor industry: suddenly other organizations, from suppliers to that industry, to businesses, to places of worship, lose the momentum that previously made a place vital.

So what do we do?

There aren’t easy answers here. Many assets we rely on today may simply cease to be functional, let alone viable. With that said, I suspect there’s a playbook for abandonment that might be sketched out and iterated by smarter people than me.

First, a gap that I see in many organizations is in their ability to practice practical foresight. Businesses are used to thinking about risk, but in my experience at a product / service delivery level this habit is not so much a practice of ‘seeing around corners’ as much as a checkbox exercise of compliance and adherence. Systemic risk thinking sits at the highest level of the business and doesn’t always trickle down. A robust habit of anticipatory thinking may help to mitigate loss and abandonment before it has to happen, or to plan ahead for when abandonment is the right path. You could think of this as a kind of anti-roadmap – what do we shutter when, with what triggers, to what benefit?

With our anti-roadmap in hand, I would hope that leaders would start to plan with, rather than for, or at worst, against the people at the heart of the stranded asset(s). Ownership or a voice in the transition is a way of enabling choice around outcomes, but also the dignity that comes with choice. True consultation strikes me as min specs; proactive and positive political and practical organization might grow from that (as in cases where fossil fuel workers have embraced and even lobbied for proactive transitions into new sectors and skillsets).

And then from planning and listening and planning again, where do we go? I suspect there might be gentler paths for some assets. Can a corporation, for example, sell an asset to a co-operative of its workers who don’t have the same imperative to deliver the same margins? Can the facilities be proactively repuporsed to an end agreed upon by the community that hosts them?

I worry, when all is said and done, that the same squeeze tightening around these assets will tighten around the adaptive system capacity required to manage their decline and death gracefully. It’s a typical death spiral dynamic, and maybe the playbook outlined above asks too much. And yet: in my home town, new life springs up. An automotive steel company collapses; its footprint is reoccupied by a plant making power distribution equipment. It’s almost too on the nose.

If we reverse the dynamic of stranding, there’s a different kind of problem: political corruption and the purchase of certain kinds of assets that are currently low ROI in anticipation of an architected system change that makes them high value. Buying up protected farmland in anticipation of zoning changes and highway linkages, for example. ↩