Asset Stranding: Implications for Investors and Governments

1. Smith School Programme on Asset Stranding: Ben Caldecott, Programme Director Nicholas Howarth, Post-doctoral Research Fellow Yuge Ma, Research Assistant Financial Sector Governance for Natural Resource Sustainability Conference, 16-17 May, SSEE, Oxford University

2. Outline Introduction to the programme: Ben Caldecott Stranded Down-Under (Yuge Ma) Stranded Assets in Agriculture (Nicholas Howarth)

3. China: a coal fired economy China accounts for 47% of the world’s total coal consumption in 2011, which is the 12th straight rising year (IEA). China became a net coal importer in 2009 for the first time. Ever since then, the amount of China’s coal imports has drastically increased, so too has the number of its coal trade partners

4. Australian coal’s dependence on China China 1/ The third largest export markets of Australian thermal coal (19.9Mt in 2011) 2/ The fourth largest export markets of Australian coking coal (9.84Mt in 2011) 3/ 10% of the total Australian coal export and is projected to increase

5. Potential drivers of asset stranding related to the China-Australia coal trade

6. Outline What are stranded assets in agriculture? What are the mechanisms by which assets become stranded? Who is exposed? What are the implications for investors, corporates and governments from this work?

7. What are stranded assets in agriculture? Gross value of capital investment in agriculture USD 5 trillion (2007)

8. What are the mechanisms by which assets become stranded ?

9. Who is exposed? • Natural assets: such as farmland (e.g. land improvements) and water entitlements (allocation/access rights); • Physical assets: such as animals, plantation crops, farm buildings, on-farm infrastructure (e.g. irrigation networks), off-farm and community infrastructure (e.g. processing facilities, dams, roads, towns); • Intellectual capital: such as research and development expertise, agricultural technologies (e.g. genetically modified organisms, fertilisers and pesticides) and management practices; • Financial assets: financial products that are tied to agricultural production (e.g. farm loans, financial derivatives); • Human capital: human know-how which has been built up through education and experience; and • Social capital: Policy and community networks such as producer organisations can build trust and support access to markets and finance which increases resilience and reduces risk.

10. What are the implications for investors / corporates / governments of this analysis? Resilience is….. Emphasize resilience over anticipatory strategies Use anticipatory strategies: adaptation planning High … Bouncing back faster after stress, enduring greater stresses, and being disturbed less by a given amount of stress… … maintaining system function in the event of a disturbance… … The ability to withstand, recover from and reorganise in response to a crisis… Predictability of asset stranding Low Strengthen resilience Emphasize resilience over anticipatory strategies For a firm For a system For an adaptive system Small Large Amount of knowledge about stranding and the effective measures to deal with it Source: Adapted from Comfort, L . K ., Boin, A. and Demchak, C . C. The Rise of resilience, in Designing resilience: preparing for extreme events. Pittsburg: University of Pittsburgh Press, 2010.

11. Thank you