Navigating Risk: Insurance for Cleantech Companies

The Cleantech Industry Today

As you know, cleantech is all about creating technology that protects the planet and aims to reduce negative environmental effects plaguing the world.

And finally, cleantech seems to be on everyone’s radar. S&P Global forecasts around $800 billion in clean energy technology investments for 2024, 10% to 20% higher than 2023 spending levels.

“Record output from solar PV and battery plants is propelling clean energy transitions — and the strong investment pipeline in new facilities and factory expansions is set to add further momentum in the years ahead,” said International Energy Agency Executive Director Fatih Birol.

Cleantech is a broad term encompassing various subsectors, such as energy and power, agriculture and food, transportation and logistics, and materials and chemicals.

Some interesting companies to make the Global CleanTech 100 list in 2024 are:

• BComp: A Swiss company manufacturing renewable natural-fiber composite materials for stiff and lightweight vehicle body panels.
• Dendra Systems: A drone-powered aerial seeding and reforestation monitoring service based in the UK.
• Zero Avia: A US hydrogen-based powertrain to enable zero-emission aviation.

Understanding the Cleantech Risk Landscape

Even though cleantech companies are fighting an essential and valiant cause, they still face many risks.

One of the first stumbling blocks cleantech companies overcome is technological failures. To think outside the box and design responsible, ethical, and affordable solutions, cleantech relies on significant research and development, which often comes with high failure rates. Plus, transitioning from small-scale production to a commercially viable product comes with problems like reliable material sourcing and maintaining cost efficiency.

Product liability is another area that all manufacturers, including cleantech, must adhere to. For example, a cleantech designing ‘greener’ batteries would need to follow the codes and standards set by the National Fire Protection Association. If standards aren’t met, this could not only result in legal issues but also negatively impact the company’s reputation.

While cleantech startups focus on helping mitigate environmental impact and promote sustainability, this doesn’t mean they’re immune to environmental liability. A variety of issues can occur, from accidents related to poorly handled hazardous materials to contamination during waste disposal. And, they need to ensure their suppliers also adhere to environmental standards to avoid indirect liability.

Another significant issue, particularly in emerging industries and technologies, is protecting your ideas and inventions. Cleantechs must protect their intellectual property (IP), such as copyrights, trademarks, patents, and trade secrets. If they delay this, competitors could use their inventions before them, and investors could withdraw funding if they discover that their unique selling point (USP) is not protected.

Sadly, the industry is also just as susceptible to cybercrime as all other businesses. Cyberattacks are troublesome for a number of reasons, from stealing sensitive client data or trade secrets to sell on the dark web, to disrupting production and damaging a cleantech’s ‘clean’ reputation.

Forces of nature can also have a hand in disrupting cleantech’s efforts. For example, a solar project in West Texas incurred $70 million worth of damage when a colossal hail storm passed over its 1500 acres of solar panels. Unfortunately, “more than 400,000 of the plant’s 685,000 Hanwha Q cell modules were damaged or destroyed.” However, thank goodness for cleantech insurance.

Core Insurance Coverages for Cleantech Companies

It’s evident that cleantech needs comprehensive and reliable insurance coverage. So, what core insurance types would the industry need to consider? Let’s break it down.

• General Liability: Starting off, cleantech companies need general liability insurance just like every other business, as it covers claims involving property damage and bodily injuries resulting from company operations.For instance, cleantech operations often involve specialized equipment and facilities, meaning they could be at a higher risk of environmental incidents, like a battery fire or chemical spill, leading to property damage or safety risks to employees.
• Product Liability: The next option is product liability, which covers injuries or damages caused specifically by a company’s products. With cleantech often creating and experimenting with new technology, glitches of factory defects may occur as the company evolves and improves its processes. Therefore, having strong coverage to protect against potential product liability claims is always wise.
• Cyber Liability Insurance: Cleantech likely couldn’t cope without computers and cyber-based systems, which means they should also never be without cyber liability insurance. This covers financial losses resulting from cybersecurity events, like data breaches.Just like any other business, cleantech will hold sensitive customer and employee data, meaning it’s at risk of ransom attacks that can disrupt business operations and cause reputational damage.
• Intellectual Property Insurance: Innovation can’t materialize without protecting it first. For the cleantech industry, safeguarding intellectual property via patents, copyrights, and insurance is an essential stepping stone to achieving its sustainability goals.Whether your company is building a new kind of water desalination filter or kickstarting the next big fusion energy company, any groundbreaking design, prototype or even just a concept is worth covering with insurance to avoid incurring copyright infringement or being infringed upon.
• Errors & Omissions (E&O) Insurance: This coverage focuses solely on financial loss stemming from substandard products or services, or malpractice when delivering client services. In cleantech, several moving parts must coordinate to arrive at the desired results, and one small delay can ruin these efforts.Building a prototype or coding and debugging software can take longer than expected to deliver the perfect product, which is why E&O is there to financially protect cleantech companies that run into issues that defer agreements or stall overall progress with partners and collaborators.
• Directors & Officers (D&O) Insurance: Lastly, it’s never been truer that competition is fierce in cleantech. In the midst of quick progress toward a shared goal, competitors, shareholders, investors, and other crucial industry players might sue company executives. This could hurt a company’s reputation and financials all at once, so relying on D&O can cover legal costs to keep the company afloat during these tricky situations.

Specialized Insurance Considerations for Cleantech

No industry operates the same, and cleantech has proven to have unique use cases the insurance sector is just starting to delve into.

For insurers, it’s vital to offer companies comprehensive coverage that caters to their targeted demands, especially as the industry expands and company risks grow alongside its successes.

One of the first coverages cleantech businesses should consider is Business Interruption Insurance. When companies depend on external factors like internet connection, cloud provider, and even the weather, business interruptions are bound to happen, unexpectedly halting operations. This translates into financial, reputational, and operational losses — insurance can help alleviate some of these consequences.

Now, what happens when businesses are the ones causing unwanted damage? While cleantech aims to preserve nature, its close contact with the environment could translate into unintended damage to it. This is what Environmental Liability Insurance is for, helping businesses remediate the consequences of operational mishaps that lead to ecological damage. Pollution Liability Insurance can be a good pick to support companies in more specific environmental damages, like contamination, a company might sustain or suffer from.

These incidents could go hand in hand with equipment breakdown, which, beyond unintended damage, can lead to business disruption and the hefty costs of fixing hardware and machinery. Equipment Breakdown Insurance can apply to cleantech companies in such cases, helping them get back on track financially after objects like machines, computers, air conditioners, or even boilers crash and force them to stop business as usual.

Moreover, cleantech companies are innovating much faster than anyone can assimilate these inventions—imagine trying to find insurance coverage for the very first iPhone back in 2007. As it happens with any cutting-edge technology, it’s difficult to tell what its potential risks will be. Some insurers have launched Emerging Technology Insurance, which broadly shields companies whenever their product or service is too novel to define so they’re ready to take on any incoming incidents.

Building a Comprehensive Insurance Program

Cleantech has begun gaining ground as the threat of climate change and environmental disasters plague the world. For companies in the sector to continue their ascent and sustainable growth, a good risk management plan and extensive insurance coverage become even more necessary.

To start crafting a worthwhile risk management plan, companies must study their industry’s past and current threat landscape to identify potential risks they could face. This general assessment will open the gate for more detailed and specific risks each business could run into — narrowing down the threats and getting into the nitty gritty is the best way to go.

After underpinning possible detractors, founders and their teams must assess each risk to determine its likelihood, and its impact on the business if it were to happen. Setting them up in tiers will help teams define the best course of action to mitigate them, prioritizing mitigating those at the top and making potential plans for those at the bottom.

These steps are essential when young companies are in the market for insurance coverage. Seeking a specialized broker will ensure they get the most specific and relevant policies out there, taking into account every targeted risk the company has already identified.

A broker can also help strengthen the risk management plan prior to insurance acquisition, becoming a trusted long-time partner.

After connecting with the right broker, businesses should negotiate the terms and conditions of insurance coverage so they don’t miss exclusions or other inconvenient clauses. The idea is to smooth out concerns, clear up doubts, and tailor insurance packages as much as possible.

Once all changes have been made, teams and their brokers should move on to reviewing and ironing out any final details.

Lastly, make sure to always get insurance certificates for all coverage. Insurance isn’t just a vital liability, it’s also a great business enabler when it comes to making new deals and partnerships, attracting investors, offering your clients peace of mind, and complying with regulations. A certificate shows a summary of your insurance coverage with its key elements — whether that’s for your own records or to display to others.

It’s an exciting time to enter the cleantech space, as brilliant minds set out to create meaningful environmental change. However, success doesn’t come without its share of risks, and companies on the rise must prioritize their insurance coverage to keep forging their growth journey. As they say, it’s better to be safe than sorry; this has never been truer for today’s promising startups.

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