Lesley Harding on the unique role that the insurance industry can play in the energy transition

Climate Action caught up with Lesley Harding, Global Head of Strategic Relationships, Energy & Transition at Liberty Mutual Insurance to discuss the unique role that the insurance industry can play in the energy transition.

You participated in a panel on the Climate Action stage at COP28 on the different roles that financial services plays in the energy transition. So much of the conversation on this has historically focused on the roles banks and investment firms play in financing and looking for positive risk returns for shareholders, but can you share more on the unique perspective the insurance industry brings to the discussion within the financial services industry?

At the heart of our business, insurance helps customers with risk identification, risk mitigation and risk transfer. We have a storied history helping our customers deeply understand the potential impacts of risks and how to manage them. When it comes to the energy transition, as an insurer, we’re in a unique position to support the reality of the current and projected economy, while helping customers advance their sustainability journeys.

As a global carrier, we have customers all over the world facing different transition challenges and impacts. We believe in working collaboratively with our customers – partnering with them to educate and advise, helping them make informed risk choices and giving security to those choices through our products and services. We’re looking to apply our risk expertise to help de-risk the energy transition.

Why should companies and organizations consider involving insurance earlier in conversations to help reduce risks through the lifecycle of a transition project?

While there is high demand for new and alternative energy sources and a plethora of emerging technologies, many of those technologies are new to the market and not yet well-understood. Early engagement with the project developer and coventurers is essential to ensure we can accurately identify, quantify and help minimize the risk through adoption of appropriate risk mitigation measures. And ultimately, help shape the allocation of risk through contract across the parties to optimize the cost. In this way we’re helping to de-risk the transition by applying our risk management capabilities to give policyholders – and potentially the broader economic ecosystem – more confidence in alternative energy solutions and new technology innovations, which can accelerate their adoption at scale.

We are active in supporting the construction of new emerging green technologies required to decarbonize, the integration of green renewable energy sources with existing infrastructure, the upgrading of grid infrastructure and the decommissioning or repurposing of fossil fuel infrastructure.

Our risk engineering and risk control teams are actively engaged in helping customers identify and reduce inherent project risk at early-stage development.

We take residual physical and non-physical transition risk, both from man-made perils and from natural catastrophes and weather-related perils onto our balance sheet.    

As more new and emerging technology solutions come to fruition, we’ll be working alongside agents, brokers and customers to develop new insurance products and solutions to meet their changing needs.   

In addition to technology, what are some of the key challenges that companies face with the energy transition?

One of the key challenges our customers face is that the nature and pace of transition will be different in different areas of the world influenced by availability of resources, government policy, public opinion and availability of financing. Regions are at varying stages evolution of the energy transition, with countries making climate risk decisions based on the needs of their own economies.

Attempting to apply globally what may work in one region could undermine other jurisdictions’ approaches to the energy transition and potentially lead to legal and regulatory concerns.

Since COP28 is an international conference for governments, what role does public-private partnership play in the energy transition and understanding new technology risk?

Despite what the private sector, and the financial sector specifically, can do – no single company or industry can solve this issue alone. Policy is still a needed lever to creating the necessary momentum for the transition to be successful.    

We’re collaborating with local and federal government agencies to exchange views about transition risks, including identifying and ultimately helping to mitigate those related to emerging technologies. These types of collaborations help us collectively enhance our understanding and effectively monitor, support and regulate climate-related advancements.

We also recognize the imperative for wide scale adoption of many new technologies to address the GHG emissions associated with the use of fossil fuels. Therefore, we believe the insurance industry has an obligation to partner with governments, customers and cross-industry partners to inform community-focused solutions, enabling customer resiliency and reducing both transition and physical risks.  

How is the concept of “de-risking the climate transition” being brought to life in your products and solutions?  

We partnered with Marsh to offer the world’s first-of-its-kind insurance and reinsurance facility, which provides up to $300 million in capacity for green and blue hydrogen energy projects. Investment in hydrogen initiatives is expected to be more than $150 billion by 2025 as energy companies, governments and industries aim to reduce their carbon emissions by switching from fossil fuels to cleaner energy sources. The facility covers risks arising in the construction and operational phases and includes property damage, marine cargo, business interruption, general third-party liability and contingent delay in start-up. 

In 2023, we won an E&S Insurer Innovation Award for creating the “first to market” insurance solution focused on carbon sequestration — a process that provides the industrial sector an opportunity to mitigate potential emissions from some operations that may have limited or no pathways toward decarbonization. The insurance solution helps companies developing carbon sequestration operations protect themselves, financial partners and source industrial and power plants against environmental liability and financial loss associated with carbon sequestration projects, including financial assurance and 45Q tax credit cover. 

Outside of your panel, what was another key takeaway that you heard during discussions and events at COP28?

While mitigation is key, as a property and casualty insurer, we’ve always felt that it needed to be paired with adaptation – or resiliency – so our built environment can withstand the impacts climate science shows us is already built into our future. It was great to see the sustainability community at large embrace this concept, and we welcomed the additional focus around energy efficiency as well. Ideally, future technology will be low-carbon, resilient to extreme weather and as energy efficient as possible.