Climate change transforms renewable risk landscape

Climate change and the subsequent transition to renewable energy and low-carbon initiatives, as well as the growing significance of Environmental Social Governance (ESG) pressures, will transform the renewable energy industry risk landscape, according to Willis Towers Watson in a new report. 

Key challenges brought on by climate change, including overcoming barriers to scale, regulatory scrutiny and potential future litigation, require that risk managers need to meet these challenges head on.

Indeed, their roles will increase in importance as they navigate changes in regulation, technology and innovation, as well as translating what this means for their company and its investors.

Meanwhile, demonstrating improved ESG performance will help reduce cost of capital and enhance partnerships within industries and communities. These increasing pressures are also creating growth in the renewable energy sector as companies look to transition to a low-carbon environment.

Important role for Asia

As the world continues to deal with the ongoing impact of the pandemic, countries in Asia can jumpstart their economic recovery and advance the region’s clean energy transition by increasing investment in clean energy.

China, for instance, has shown a steady growth trend. Although the growth of investment and newly-installed renewable capacity was lower last year compared to 2019, there has been a general recovery of new construction projects.

Renewable energy is also an important part of China’s ’New Infrastructure’ investment stimulation strategy that was launched last year. This has helped to attract and encourage new investment and application of new technology in renewable energy companies, and the proportion of the industry will continue to increase in China’s energy mix.

”Renewables companies need to know how the energy transition is going to affect their industry, why climate change is already transforming their industry risk landscape, how they can play a strategic role in developing their response to this transition and which ESG pressures are going to affect the industry in the future,” said George Nassaouati, head of Natural Resources Asia, Willis Towers Watson.

Hardening market for renewables

At the same time, the renewables industry is faced with further insurance market hardening as insurers seek to capitalise on last year’s pricing increases to drive further improvements in pricing to restore this portfolio to profitability.

Increases of between 10% and 40% are being experienced across a range of global markets, while casualty rating increases can sometimes be even more significant.

Nassaouati said: “In these unprecedented times, the renewables industry finds itself beset by risks and challenges from all sides, as COVID-19 tightens its stranglehold on the global economy and insurance market conditions harden.”

”However, it is the issue of climate risk and ESG that will have a more significant impact on the future shape of the industry. Renewables companies must develop a significant ESG footprint and incorporate climate change risk into their risk mitigation strategies in order to survive in the future.”