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Protecting senior officials as growing clean energy companies face evolving risks

04/04/2025 · 4 minute read

Global investment in the energy transition exceeded $2 trillion for the first time in 2024. In the US alone, $272 billion was invested in the manufacture and deployment of clean energy, electric vehicles, building electrification, and carbon management technology, up 16% from the previous year.  

This dynamic growth was fueled by robust legislative support, technological advancements, and a rise in demand for renewable energy sources. The sector has also seen a resurgence in domestic manufacturing, with substantial investments aimed at bolstering US capabilities in clean energy production. 

As new companies emerge and existing firms expand, the industry is poised for continued innovation and growth, reflecting a transformative shift towards a more sustainable energy future. 

A fast-growing sector faces multiple opportunities, and risks

To succeed in this dynamic environment, these clean energy companies must attract top talent, raise capital, secure contracts, and manage regulatory compliance. While essential, these actions can pose significant risks for their directors, officers, and the company, including:

  • Shareholder lawsuits. Projects often rely on future revenue projections to raise capital, attract shareholders, and secure bank loans, stakeholders, and customers. But if these projections fail, or if financial statements are inaccurate, companies may face shareholder lawsuits. Allegations of inaccurate projections may also arise in mergers and acquisitions.
  • New technology challenges. The introduction of new technologies carries risks, including performance issues, regulatory approvals, and potential intellectual property claims. 
  • Delays. Construction delays or supply chain disruptions that lead to longer lead times for critical supplies can throw a project off its timeline. And if the company’s leaders do not effectively communicate the potential impact to stakeholders, they may face claims. 
  • Public scrutiny. Political collaborations or community opposition can lead to litigation over perceived misleading statements.
  • Regulatory compliance: Companies must manage a complex and evolving regulatory landscape that can include federal and individual state regulations.  

Clean energy D&O litigation trends

Allegations against clean energy companies typically include misstatements of financials, failure to disclose material facts regarding regulatory approvals, and overly optimistic timelines. Recent litigation trends include:
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Allegations of misleading statements related to regulatory approvals, operational performance, and project timelines are the most prevalent in the clean energy sector. As renewable energy companies seek to attract investment, they may face legal challenges if they do not provide transparent and accurate information about their projects and business operations.

A number of lawsuits related to project delays highlight the critical need for timely project execution and the transparent disclosure of any delays. If a company is not open or clear about its project delays, shareholders may claim that these undisclosed issues have negatively impacted revenue and increased investment risks. Investors are also becoming more attentive to the operational aspects of renewable energy projects and expect companies to communicate any challenges that could affect their financial performance.

A number of cases raise concerns about exaggerated financial projections that stem from unrealistic timelines or undisclosed risks. Allegations may suggest that the company's public statements have led to an inflated view of its financial stability and growth potential. Investors are becoming more cautious and are closely examining the financial assertions made by renewable energy companies, especially in light of regulatory and operational challenges.

A number of securities class action lawsuits have alleged that clean energy companies’ IPO registration statements were misleading because they failed to include crucial information about significant construction delays. As the renewable energy sector continues to grow, companies may face increasing legal risks related to securities litigation. Investors are likely to hold companies accountable for transparency and accuracy in their communications, especially regarding project timelines, operational performance, and financial projections.

Clean energy startup to IPO trajectory

While these risks and trends affect the broader clean energy sector, exposure varies significantly between companies and depending on their stage of maturity. Startups, for example, typically face different challenges than those preparing for an initial public offering (IPO). As companies grow, their directors and officers liability (D&O) insurance programs must also evolve to effectively manage the company’s changing executive liability.

In the preliminary stages — such as the angel or pre-seed phases — clean energy startups should consider D&O insurance to meet investor requirements and attract qualified board members. Even without specific mandates, obtaining D&O coverage is prudent to protect against potential lawsuits, including:

  • Shareholder lawsuits alleging misrepresentation in financial reporting or fundraising documents
  • Customer allegations related to harassment, discrimination, or misleading statements
  • Antitrust violations or intellectual property infringement allegations from competitors
  • Legal disputes arising from founders' close involvement in daily operations

Startups may benefit from bundled insurance policies that combine multiple liability coverages for efficiency.

As a company reaches growth milestones, such as fundraising rounds or revenue targets, a more strategic approach should be considered to include:  

  • Higher coverage limits to match increased exposures
  • Partnerships with carriers experienced in public companies and IPOs
  • Standalone employment practices liability (EPL) policies to protect D&O limits
  • Dedicated Side A D&O policy for individual directors and officers

Maintaining broader entity coverage is crucial for private companies as they continue to grow and the risks they face evolve.

An IPO carries inherent risk for directors and officers and requires a sophisticated approach. Further, once a company goes public, the need to comply with Securities Exchange Commission regulations significantly increases D&O risk. As a company prepares to go public, it is essential to work with an experienced broker to ensure comprehensive coverage. Key considerations at this stage include:

  • Reassessing coverage limits to align with potential exposures
  • Partnering with carriers experienced in IPOs
  • Expecting higher retentions and premiums
  • Purchasing standalone EPL, fiduciary, crime, and kidnap and ransom insurance
  • Reviewing international exposures with locally admitted D&O policies  

A successful IPO requires a proactive strategy to mitigate D&O risks, emphasizing the need for tailored insurance solutions and expert guidance. 

Evolving risks require robust safeguards

The clean energy sector's rapid growth presents unique challenges. Complex regulations, supply chain disruptions, and reliance on new technologies, among others, can lead to costly and potentially disruptive claims. To navigate these challenges and ensure success, clean energy companies must align their D&O programs with current exposures and future growth expectations. 

For personalized guidance on the most effective D&O program for your specific circumstances, consult the Marsh FINPRO Power and Renewables team or your FINPRO advisor.

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