Why is Investing in ClimateTech the Need of the Hour?

By: Shyam Menon

ClimateTech includes a broad set of sectors that tackle the challenge of decarbonising the global economy. The major aim is to reach net-zero emissions before 2050. This includes low-to-negative carbon approaches to cut key sectoral sources of emissions across the energy. It further includes building environment, mobility, heavy industry, food and land use. It also includes cross-cutting areas such as carbon capture and storage or enabling better carbon management, such as through transparency and accounting.

ClimateTech is opening up multi-billion dollar opportunities to entrepreneurs worldwide. In a country like India, investing in businesses that are focused on mitigating climate change could open many pathways towards sustainable development.

Currently, India has 21 of the most polluted cities in the world out of 30, and it also happens to be the third-largest globally in terms of CO2 emissions. The frequency and duration of heatwaves and droughts; areas under dry spells, flash floods, urban floods, and extreme rainfall events are all increasing because of climate change. While many countries have plans to reduce these emissions within a set time period, India needs to invest more in both the climate change mitigation and adaptation sides of this issue.

Addressing the issue

Organisations need to address ClimateTech adoption in India from both the urban and rural points of view. The urban context can focus on climate change mitigation with intervention opportunities in the transportation, residential, commercial and industrial sectors. The central motif in these sectors would be to reduce the CO2 intensity of these activities by offsetting the use of fossil fuels with the increased use of renewables, promoting energy efficiency and transitioning to an electric vehicle future. These mitigation measures will help in reducing the climate impact from human actions.

In rural India, we believe the focus should be more on initiatives to build resiliency. Thus, the rural population can withstand the increased frequency of adverse weather events. This includes droughts, floods, the resultant spread of diseases etc. Hence, there will be an increasing need for inclusive finance, developing pest and disease-resistant crops. It will also prevent land degradation, build robust rural supply chains. Further, it increases healthcare access to improve the rural population’s resilience to the adverse effects of climate change.

In a nutshell, there are a plethora of opportunities for ClimateTech entrepreneurs to dive into and build businesses within the realms of climate change mitigation and adaptation in both urban and rural India.

Acknowledging the need for investment

Typically ClimateTech startups tend to be more capital intensive compared to pure software startups. The incumbent end-users in the market (in areas like heavy industry, transportation, construction etc.) have their reservations about adopting new technologies. Most prefer proven products or solutions with scalable deployment. This, along with the lack of early-stage financing options is amongst the significant hurdles that the cleantech entrepreneurs face. This leads to a long struggle to get their offerings market-ready. Recent technological advances in IoT, AI, big data analytics have enhanced the ability of entrepreneurs to predict, measure, and optimise the performance of new solutions cost-effectively compared to the past.

Also, the end-use markets of climate-tech like mobility, logistics, smart buildings etc., have grown significantly in size. Hence, if a climate-tech startup can get past the early humps in the road and get to a product-market-fit, the opportunities to attract capital are increasing. Providing a full-stack solution and taking on financial and operating risk, is a proven way to capture value. For eg, energy-efficiency-as-a-service vs energy management software.

Need of Early Stage Equity Capital

There is a significant spike in the number of growth capital investors; a combination of PE, DFI and impact investors. They can help full-stack solution providers catalyze the pace of deployment of their solutions globally. There is still a need for more early-stage equity capital deployment in the climate tech space in India. Yet, this gap will get filled in the days to come as more investors are waking up to the global commercial and return potential of these technology companies.

Global consumer demand for climate-friendly products has rocketed, with companies like Tesla, Beyond Meat and Nest leading the way. We are at the very early days of a significant positive shift in consumer demand for environmentally-friendly products and solutions in India. This should also lead to a plethora of new offerings in the climate positive B2C space in the coming days.

Change in Regulations in ClimateTech

The regulatory settings globally have transformed over the last decade. The US recently rejoined the Paris global climate accord. Many countries are rapidly strengthening their national policies, and regulation and legislation on climate change. Thus, over one hundred countries are now committed to becoming carbon neutral by 2050.

Hence we believe this is a fantastic time for entrepreneurs to look at building solutions. They should aim to tackle the new set of challenges presented by climate change. We definitely plan on engaging with entrepreneurs developing highly innovative tech-enabled scalable climate positive solutions areas. This includes mobility, logistics, energy efficiency, waste to value, industrial process heat and power, protein replacement, smart buildings, precision agriculture etc.

Unleashing the latent entrepreneurial energy to tackle one of the most significant challenges facing humanity will only make our country more assertive, self-reliant and better prepared to take care of its people in a sustainable way.

About the Author:

Shyam Menon is a Partner and Co-Founder at Bharat Innovation Fund and Chief Growth Officer at CIIE.CO.

Originally published at https://www.ciol.com/investing-climatetech-need-hour/ on March 30, 2021.