Where are India’s climate tech unicorns?

Representative image (Source: AFP)

Anirban Mukherjee and Aishwarya Jain

Northvolt in Sweden has pledged to make the world’s greenest battery cell; Hozon, China is manufacturing the most affordable EV SUVs and Farmers Business Network (USA) is on a mission to create the future of sustainable farming. These are just some of the innovative climate technology unicorns that have received around $130 billion (Pitchbook) in PE/VC funding between 2016 and 2021.

The US received the largest share of funds (45 percent), followed by Europe, and China. India while among the top 10 countries for climate tech funding, received only ~2 percent of the global capital flows. A single climate tech unicorn (Ola Electric) originated in India; overall funding was characterised by 200-plus small ticket-size deals. About 90 percent of the funding was towards electric vehicles, and renewable energy. Other, less mature climate technologies such as carbon capture and storage, biofuels, and sustainable agriculture were not big focus areas for PE/VC investors.

The focus on renewables and EVs is understandable. Renewables have achieved grid parity and are a proven business model. Electric vehicle players have focused on two- and three-wheelers, which have a strong business case in the Indian market, and significant government policy support. Other nascent climate technologies that are doing well globally often have limited bankability, and higher perceived risk in the Indian context.

To achieve net zero target by 2070, India Inc. needs to focus on this nascent technology including:

Climate intelligence & data technology such as last-mile source verification for digital supply chains, AI for monitoring energy and water consumption, smart manufacturing technology to monitor process emissions and waste generation, etc.

Low carbon technologies to enable our energy transition, including energy storage to address the intermittency of renewable energy, energy efficiency technology, biofuel production, and smart grids

Climate adaptation technology to enable sustainable agriculture, resilient cities, livestock methane removal, and waste circularity

Various sources estimate $10 trillion as the investment required for India to achieve net zero by 2070. Currently, climate investments in India are around $21 billion per annum; that’s less than 15 percent of the annual flows required. Interestingly, the shortfall is not so much for the want of funds, as it is for the want of ideas worth funding.

There are, however, some encouraging signs of climate tech ventures tailoring global technologies to meet India-specific challenges. For instance, India has an abundance of feedstock for generating biofuel, but due to a heavily disaggregated market consistent access to raw materials for manufacturers has been a challenge. Biofuels market aggregators are working to successfully connect raw material aggregators, biofuel manufacturers, fuel consumers, and waste generators. There are also exploring the potential of using blockchain to validate the tracking and traceability of used cooking oil (UCO) becoming biodiesel.

Another example is reducing livestock GHG emissions. Agriculture and livestock emissions account for 18 percent of India’s GHG emissions. Livestock farming in India is characterised by small farms, with a few cattle as the primary income source. Since methane capture and other technologies available to large-scale farmers globally are not affordable, innovators in India have introduced affordable feed supplements that cut down methane emissions while improving milk production.

Beyond scalable business models, for Indian climate tech to really take off, we need three big enablers:

Transparency and traceability of green activities

• Adopting a robust and internationally aligned definition of ‘green’
• Climate data and intelligence technology to improve data monitoring and reporting

Government policy support to increase sector attractiveness. For example, regulatory and fiscal incentives to promote investment in priority sectors, and/or catalytic public capital infusion to de-risk climate tech investments

According to the International Energy Agency, globally $21 trillion in new investment in both mature and newer low-carbon technologies will be needed over the next 10 years. Of this, 10 percent or more is expected to come from private investors including PE/VC firms. Expedited action from both — the policymakers and entrepreneurs — is crucial for India Inc., and specifically the startup ecosystem, to claim its rightful share of the pie, and usher in the next wave of ‘green unicorns’.

Anirban Mukherjee is Managing Director & Partner, and leads Climate & Sustainability team, BCG India. Aishwarya Jain is Consultant, BCG India. Views are personal, and do not represent the stand of this publication.