If you have already set the power button to initiate sleep mode via Power Options but it is still not functioning, please try the following solution.
First, ensure that you have configured the power button action by navigating to Control Panel > Hardware and Sound > Power Options > Change what the power buttons do.
Test if it is working now before proceeding to the next step. If it is not, follow the steps below.
Open Local Group Policy Editor by pressing Win + R, then typing gpedit.msc. Navigate to Computer Configuration > Administrative Templates > System > Power Management > Button Settings.
Check the state of “Select the Power button action (plugged in)”; It should be set to “Not configured”.
The next is crucial: even if the state is already “Not configured”, you need to edit it. Double-click on it, then change the state into Enabled > Apply > Not configured > OK.
Repeat this process for “Select the Power button action (on battery)“.
Now, your power button should function as expected, as configured in “Power Options” 🎉, no need to change it from Local Group Policy Editor anymore.
You can also verify the current state by running powercfg /query from Terminal (Admin). The output you are looking for should show Index: 000 is for Sleep.
Subgroup GUID: 4f971e89-eebd-4455-a8de-9e59040e7347 (Power buttons and lid)
GUID Alias: SUB_BUTTONS
Power Setting GUID: a7066653-8d6c-40a8-910e-a1f54b84c7e5 (Start menu power button)
GUID Alias: UIBUTTON_ACTION
Possible Setting Index: 000
Possible Setting Friendly Name: Sleep
Possible Setting Index: 001
Possible Setting Friendly Name: Hibernate
Possible Setting Index: 002
Possible Setting Friendly Name: Shut down
Current AC Power Setting Index: 0x00000000
Current DC Power Setting Index: 0x00000000