Fossil fuel deposits are being called stranded assets. Bankers and investors consider them a high-risk source of energy. What happens when companies continue to make products that really do not have a future in a reduced fossil fuel economy? If they do not plan, companies themselves will face being stranded without viable alternatives.
Countries around the world are coming to grips with how to slow human caused climate change. Future legislation to control carbon emissions will dramatically affect fossil fuel dependent industries. This will not happen overnight, but companies need to prepare for this change.
Can sustainability reporting help? If used properly, it is a major risk management tool. It has to be more than a PR communication. If a company embeds sustainability goals into its mission and strategy, it can look at the longer-term risks facing its operations. If it is dependent on fossil fuels for raw materials or transportation, this is a major risk. Sustainability planning can assist a company as it seeks to make transitions to alternative raw materials or modes of transportation. Recognizing these risks and planning for them can help a company avoid the stranded asset problem.
For this to work, sustainability reporting needs to be transparent and integral to the operations of the business. Otherwise, this valuable tool does little to benefit the company in the long run. VW may have learned this lesson too late in the game. Their diesel engines are not performing as promised; this may well destroy the company. The strategy of making an engine with high environmental and power performance was a great one, but results were not real. Had they reported the actual performance early on, they would have been better positioned to develop alternative options. Now, they are in severe damage control mode. This will be far more costly than if they had scrapped the diesel engine that was too good to be true.