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Transition finance: How insurance can reallocate risk and unlock capital

Insurance can serve as key enabler for transition finance, making projects more bankable and operational by transferring risks that might otherwise make lenders and investors reticent.
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By Amy Barnes , 

Global Head of Energy & Power, Marsh

07/23/2025 · 4 minute read

The financing needs of the climate transition are well recognized, although the risk profile — whether the risks are technical, political, or financial — can impact which transition projects received funding and on what terms.

Insurance can serve as key enabler for transition finance, making projects more bankable and operational by transferring risks that might otherwise make lenders and investors reticent. Without insurance, some projects may not even get off the ground. Strengthening collaboration among lenders, investors, the public sector, and the insurance industry is essential to an effective transition. Such engagement can help to more clearly define risk profiles and foster the development of solutions, ultimately accelerating the flow of capital toward transition initiatives.

Uncertainties impacting transition finance

An estimated US$125 trillion investment in infrastructure, technology, and innovation is needed to finance the global transition to a net-zero economy by 2050. Deploying and managing these funds involves collaboration across a broad ecosystem consisting of investors, governments, banks, and the insurance industry.

Government policies can foster an enabling environment for scaling transition finance and facilitating private market activities aligned with decarbonization pathways. Financial institutions are crucial in accelerating the transition to a net‐zero economy by facilitating capital flow. For its part, the insurance industry can enhance the insurability and bankability of projects by bearing certain of the risks.

However, several uncertainties can impede climate finance investment, including complex project risk profiles, exposure to natural catastrophes, political instability, regulatory constraints, and expertise gaps. These factors can discourage lenders and investors from committing capital. They may be asking: What are the key risks? What is the likelihood of loss? Addressing these concerns and others can be key to unlocking additional investment.

The insurance industry can assist in addressing a range of technical, credit, operational, and political challenges that might otherwise deter investment or increase the costs of financing transition projects. In an ever-changing landscape, the insurance industry offerings are also evolving to provide more sophisticated and flexible products to mitigate and manage risks, including:

  • Political risk insurance: Policies can generally address the risks associated with government policy changes, unrest, or currency fluctuations, which can be particularly important for projects in potentially volatile regions.
  • Credit insurance: Policies can respond to non-payment events, thereby promoting the flow of capital and reducing the cost of financing.
  • Performance guarantees: Guarantees can help to mitigate potential financial losses — for example, from the underperformance of a novel technology.
  • Alternative risk transfer: Offerings include parametric solutions that trigger payouts based on indices like weather patterns.
  • Carbon credit insurance: Policies can safeguard against project failure, non-delivery, or developer insolvency, making investments more secure.

Physical risk assessments can also be used for evaluating physical exposures to better inform investment decisions and allow for implementation of resiliency measures.

Enhancing climate technology

A significant portion of climate finance must go toward developing, demonstrating, and deploying new technologies — such as low carbon energy, battery storage, green hydrogen, and carbon capture and storage. Some of these technologies have limited risk or performance data, potentially making insurability (and thus investment) challenging. However, the insurance industry is increasingly adept, using available tools, at understanding and quantifying risks associated with newer technologies and at drawing on risk advisory and engineering expertise, all of which are key to underwriting the transfer of risks and informing risk management strategies.

Engaging with your insurance advisors early in project development can improve risk understanding and lead to creative tailored insurance solutions that can, in turn, promote greater confidence among investors.

Fostering collaboration to accelerate transition finance and project success

As with most industries and complex issues, addressing transition finance challenges requires collaboration beyond one organization or industry. The insurance industry plays a crucial role in making projects more attractive and bankable by providing the necessary capacity, innovative products, and support systems needed for projects to thrive. However, achieving this depends on collaboration and active engagement among the financial sector, the public sector, and the insurance industry. Building strong, long-term relationships is essential to create innovative solutions, accelerate scaling efforts, and expediate the deployment of transition finance where it is needed most.

Insuring the Transition

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