DEEP DIVE
Key Finding #4
Although public policy has propelled the energy transition forward, additional government support is deemed essential for continued progress
In the transition towards a more sustainable future, governments and regulatory bodies are recognized as pivotal players, with 92% of energy producers viewing them as critical entities in accelerating the energy transition. This speaks to stakeholders’ recognition of public policy as a powerful driver for corporate climate action that prompts businesses to align their strategies with evolving regulatory environments. At the same time, there is a clear call for governments to both continue creating investment incentives and to help address the financing gap in the renewable energy sector by providing an additional layer of financial protection and guarantee in case of adverse events.
The critical influence of public policy
The regulatory landscape poses multifaceted challenges for businesses, requiring them to align their strategies with quickly evolving mandates and compliance requirements. Policy and regulatory environments are a prominent concern for 37% of energy producers and 42% of industrial energy buyers, reflecting increased pressure to align business strategies to changing regulatory environments. Stakeholders in the UK are more likely to view this as a major risk factor (42%) than those in the US (35%), reflecting the ways in which a more proactive regulatory environment can represent a double-edged sword for businesses at the vanguard of the energy transition.
“Coupled with regulatory frameworks like the Task Force on Climate-Related Financial Disclosures and government-led initiatives like the Green Finance Strategy, the UK’s proactive stance on ESG compliance emphasizes its commitment to responsible business practices,” comments Mark Gregory, Head of Global Markets at AXIS. “While potentially viewed as a heavy lift for businesses, these initiatives are essential for navigating the complexities of the energy transition in a structured way.”
Simultaneously, regulation serves as a powerful driver for corporate climate action, with almost half of all survey respondents (49%) citing regulatory compliance as a key motivator. Government policies and tax incentives, such as those included in the US Inflation Reduction Act, can be instrumental in driving investment in the energy transition. As a US renewable energy customer stated, "Public policy is the backbone of renewable energy — without it, the transition will not be as robust," further describing the IRA as "a catalyst, like a jumpstart."
“Public policy is the backbone of renewable energy — without it, the transition will not be as robust.”
US Renewable Energy Customer
The need for more government involvement
Interestingly, 92% of respondents agree that governments need to play a more active role in working with insurance companies to create a backstop mechanism in case of severe weather and climate events.
Government involvement is viewed as an additional — and necessary — signal that investments would be protected in the case of adverse events, with one US customer wondering “whether the government should also provide a backstop for severe storms that are transitioning the market and complicating the sustainability of the insurance industry,” like it does for other force majeure events.
"The desire for more government involvement is one of our survey’s most noteworthy findings, suggesting an opportunity for the insurance industry to work more closely with policymakers. What ultimate form this would take would require input from a host of different stakeholders. From my point of view, a government backed solution alleviating some of the pressure caused by weather-related risk - borne by the very industry that is aiming to mitigate the effects of climate change - would offer a level of protection to customers, investors, and insurers alike and help ensure the continued growth of renewable energy capacity in the years and decades to come,” notes Sam Walsh, Head of US Renewable Energy from AXIS.
This type of collective guarantee could be even more important for newer technologies that lack the historical track record of other more traditional energy sources and have a higher risk of being impacted by severe weather events.
Through regulations and public policies, governments can drive progress, help mitigate risks, and create a more favorable landscape for energy transition investments.
“As we have already seen in the US and the UK, smart public policies can help create a more stable investment environment that serves as a catalyst for renewable energy technology projects,” notes Joe Dutton, Energy Innovation Lead at AXIS. “There is a clear space for policymakers to make the energy transition a smoother process for the groups involved.”
