By Sheetal Bahl
Climate change is causing huge disruptions globally and India is no exception. It is estimated that climate change will lead to at least 40% of India’s population living with water scarcity by 2050, while 35 mn people could face annual coastal flooding. Climate change could also have a devastating impact on the agriculture sector as yields of rice, wheat, and pulses could fall by almost 9% by 2050.
Currently, India is ranked seventh on the Global Climate Risk Index 2021, and climate issues could have a huge impact on its goal of building a $5 trn economy over the next few years.
Many entrepreneurs and investors are seeking to address climate change by investing in “climate tech” firms which range from those into renewable energy, batteries, and EVs to green construction and low-carbon agriculture. The role of venture capitalists (VC) and private equity (PE) firms is crucial in helping identify, fund and scale game-changing cleantech solutions.
Globally, VC investment in climate tech firms increased from $6.6 bn in 2016 to $32.3 billion in 2021. The situation in India is also looking up. A recent study found that over the past five years, 120 climate tech start-ups raised more than 200 funding rounds from 272 unique investors in India. According to experts, around 20% of the startups are prioritising sustainability, with think tanks like the Niti Aayog providing financial support for the development of clean-tech incubation centres and entrepreneurship. This has resulted in climate tech firms receiving $1 bn in VC funding from 2016 to 2021. The startup and investor ecosystem is also working with the government to counter the country’s emission problem across all verticals.
Various factors have contributed to India emerging as a haven for climate tech investments. A conducive policy environment nudged by PM Modi’s commitment at the COP 26 summit that India will achieve net-zero emissions by 2070 is one of them. In addition, the development of low-carbon technologies, and the creation of a large asset base in clean energy have necessitated the development of new businesses.
Although much of this activity has been concentrated on large, utility-scale renewable project financing, there has also been a change in focus to bring about sustained decarbonisation of the economy at all levels. For instance, sustainable mobility has garnered investments of $705 million across 84 deals since 2016. Similarly, the energy sector has accounted for $301 mn across 44 deals.
Agriculture is a sector that is highly vulnerable to climate change. Over the last couple of years, there has been an exponential flow of investments to the sector. VC firms have focused on making farmers and farming practices self-reliant and climate-resilient. Similarly, VC/PE firms are investing in start-ups that are into renewable energy generation, electric mobility and ancillary businesses like OEMs, component manufacturing, and waste recycling services.
India’s transition to a net-zero economy has begun, supported by the government and think tanks and backed by cutting-edge technologies. VC/PE investors are uniquely placed to support this change while also generating substantial returns. To realise this potential, there is need to scale up the climate tech ecosystem – through policy, investment, and collaboration.
The writer is MD and partner, growX Ventures.