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AXIS Report: Impact of climate change, economic uncertainty, investor reluctance to innovate and other risks on energy transition

AXIS Report: Impact of climate change, economic uncertainty, investor reluctance to innovate and other risks on energy transition

 


AXIS Report: Impact of climate change, economic uncertainty, investor reluctance to innovate and other risks on energy transition

New research from global specialist insurance company AXIS identifies the factors driving and hindering the energy sector's transition to net zero.

AXIS Capital Holdings Limited (AXIS Capital or AXIS or the Company) (NYSE: AXS) today released a new report, “Hedging Risks in the Energy Transition,” which is based on original research and explores views within the energy sector on how key risk areas are impacting the transition from climate change and economic instability to securing investment, insurance and government support for the expansion of renewable energy technologies.

Key findings of the report include:

Climate change is both a driver of change and a source of risk. Climate-related weather events pose direct threats to companies' physical assets and indirect threats to a wide range of business operations. There is a gap between the desire to advance the transition and the reality of achieving net-zero targets. Global economic conditions are making financing for renewable energy projects more expensive and difficult to secure. Public policies are driving the energy transition, but additional government support is considered essential for continued progress. The insurance industry has an opportunity to move beyond a transactional mindset towards supporting customers in a more holistic way and play a more active and strategic role in the energy transition.

The report, based on a survey of more than 600 energy producers, industrial energy buyers and specialty insurance brokers in the US and UK, also offers insights into how insurers and other stakeholders can more effectively deliver on the energy transition.

“The transition to a low-carbon economy is one of the greatest challenges of our time, and achieving climate goals will require businesses, governments, communities and individuals to all work together,” commented Vince Tizzio, President and CEO of AXIS. With the publication of this report, AXIS aims to improve understanding of the risks and challenges associated with the energy transition and highlight how energy industry stakeholders can proactively and collaboratively support companies in the transition.

Read the full AXIS energy transition report here.

Some of the findings from this study include:

Climate change measures

Climate change is a driver of change and a source of risk for businesses, affecting their business operations while also influencing other key risk factors. These include energy price volatility, supply chain disruptions, a changing regulatory environment, technology disruptions and extreme weather. More than two-thirds (69%) of industrial energy buyers expect the climate crisis to affect their company's financial performance, including revenue, costs and investments. The most common drivers for businesses to take proactive climate action are long-term business viability (49%), regulatory compliance (49%) and climate concerns (47%).

Strategic Investments

Spending on energy efficiency improvements is a crucial lever for tackling climate change and is the most common form of transition investment (US 73%, UK 71%). This can be interpreted in the context of the recent energy crisis and exposure to fossil fuel and commodity price fluctuations. Preparedness to meet the urgency of the transition is limited, with most respondents feeling either somewhat prepared (55%) or not very prepared (4%).

The growth of renewable energy

Although the renewable energy sector continues to thrive, the high capital investment required for projects (35%) and the state of the global economy (33%) emerged as the two most common barriers for companies to increase investment. Emerging technologies require more capital to scale, often have more stringent financing challenges (cited as a challenge by 40% of energy producers) and lack a proven return on investment (cited as a challenge by 33% of energy producers). Solar technology is currently the most popular investment area compared to other renewable energies (UK 63%, US 54%). Solar is followed by battery storage solutions (US 38%, UK 35%) and smart grid technologies and modernization (US 36%, UK 31%).

economic situation

Global economic conditions, characterized by rising interest rates and inflation, are making financing for renewable energy projects more expensive and difficult to secure. When asked to identify the main risk factors facing their companies, volatility in energy prices was the most common answer for industrial energy buyers in both the UK (63%) and US (57%).

Other key points from the report include:

Public policies are perceived to have accelerated the energy transition, but further government support is considered essential for progress 92% of energy producers surveyed note that governments and regulators have a key role to play There is a clear call for governments to continue creating investment incentives as well as address the financing gap in the renewable energy sector by providing additional financial protection and guarantees in case of adverse events The insurance industry has an opportunity to play a more active and strategic role as a risk partner in the energy transition by moving beyond a transactional mindset and offering more comprehensive solutions Currently, less than half of energy producers (49% US, 42% UK) perceive insurers as strategic partners that help secure investments related to the energy transition Furthermore, survey results show that almost a third (31%) of energy producers believe that the insurance industry is currently hindering innovation in the energy transition, due to a lack of comprehensive and diverse coverage options Eliminating siloed perspectives could also remove financing constraints 94% of energy producers would like to see greater collaboration and information sharing between project developers, insurers, brokers, investors and funders

Richard Carroll, global head of energy resilience at AXIS, added: “The report highlights that energy companies recognise that significant investment in innovation, risk management and long-term strategic thinking is key to achieving net zero targets. The energy transition also requires an insurance industry with deep expertise in the risks associated with the transition and the complexities of deploying technologies to deliver global net zero ambitions.”

Through its Global Energy Resilience division and the AXIS Energy Transition Syndicate 2050, AXIS is committed to working with customers and partners to address challenges and seize opportunities to drive a more resilient, low-carbon future.

About the Research

To compile the report, “De-risking the Energy Transition,” AXIS commissioned APCO Insight, a global research consultancy that conducts independent public opinion research around the world, to conduct an online survey of 400 energy producers and 200 industrial energy buyers in the U.S. and the U.K., followed by qualitative interviews with clients and brokers that work with AXIS. The survey was conducted between March 7-16, 2024. Respondents were randomly selected from Dynatas' online panel and screened for eligibility to be included in the selection. More information can be found here.

About AXIS Global Energy Resilience and Syndicate 2050

Our Global Energy Resilience team is made up of underwriting, claims, risk and data experts with deep exposure to the energy industry who work every day to help brokers and clients architect, craft and design the right energy solutions. Learn more here.

Launched in April 2024, AXIS Energy Transition Syndicate 2050 is a specialist insurance syndicate from Lloyds Bank that provides cover for the risks associated with the transition from reliance on fossil fuels to more sustainable energy sources and practices. Find out more here.

About AXIS Capital

AXIS Capital, through its operating subsidiaries, is a global specialty underwriter and provider of insurance and reinsurance solutions. The company has shareholders' equity of $5.5 billion as of March 31, 2024 and operates in Bermuda, the United States, Europe, Singapore and Canada. Its operating subsidiaries have financial strength ratings of “A+” (“Strong”) from Standard & Poor's and “A” (“Excellent”) from AM Best. For more information about AXIS Capital, please visit our website at www.axiscapital.com.

Follow AXIS Capital on LinkedIn and X Corp.

Investor Contacts Cliff Gallant AXIS Capital Holdings Limited [email protected] +1 415 262 6843

Media Contact: Mairi MacDonald AXIS Capital Holdings Limited [email protected] +44 7785 280 083

View source version on businesswire.com: https://www.businesswire.com/news/home/20240613889436/en/

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