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Capital expenditure has increased significantly in recent months and rail freight volumes have reached record levels. India’s biggest companies — including Wipro Ltd., Ultratech Cement Ltd. and Defense Industries Ltd. — are increasingly talking to their shareholders about sustainability. Private capital is also looking to back climate-related technology, with nearly $2 billion of the nearly $27 billion in investments made by the middle of this year going to Indian companies.
Surprisingly, a few billion dollars is not enough – and international venture capitalists looking for green investments are missing from the picture. Eventually, billions will be needed to propel these organizations forward to meet emissions targets. Tightening financial conditions won’t help, but India’s biggest challenge is to overcome the usual skepticism about its corrupt politics, infrastructure and red tape.
What is underappreciated is that not all of this climate-friendly activity is driven solely by multibillion-dollar subsidies. Those steps, while in the right direction, weren’t a huge boost in themselves. Policies in various sectors are still in the draft stage. India’s commitment to greening stands in stark contrast to similar developments elsewhere in the world. In China, carrot and stick policies and subsidies were released to get entrepreneurs, industries and firms on board. Even in the US, tax credits and incentives have been drivers of change.
The country’s post-Covid recovery is underpinned by better roads and infrastructure and a shift in manufacturing. Large inspections have gone to major locations. KKR & Co. India’s road infrastructure investment trust has launched and is investing $450 million in Hero Future Energies Pvt., an independent power producer and solar and wind projects, along with motorcycle maker Hero Group. Brookfield State Management is investing more than $2 billion in renewable energy projects, tripling its capacity from 39 gigawatts in 2015 to 110 gigawatts. Even Amazon.com Inc has announced plans to set up a solar farm in the western state of Rajasthan.
Mobility and transportation have so far attracted most of the initial investment, which makes sense: the sector accounts for more than 10% of India’s emissions. As thousands of miles of highways are being built, charging station companies for electric vehicles are on the rise, along with those that make batteries and EVs. To help finance electrification, the government is working with the World Bank to develop a de-risking tool for financing EVs. Banks are offering green car loans and non-bank financial institutions are also increasing their lending.
As two- and three-wheeler EVs and e-buses are widely adopted, Road Transport and Highways Minister Nitin Gadkari told me in an interview that the economic electrification is true. They are lowering the cost of transportation. The Indian market for climate-technology solutions is not only a major technology transition, but also an affordable energy transition.
Another crucial ingredient: the entrepreneurs — from the country’s top universities like the Indian Institute of Technology — are working on projects ranging from battery swapping and EV chargers to carbon accounting, and are creating new ways to boost agricultural efficiency and consumers. Green awareness. As one investor told me, these founders are putting not only their capital but also their time, energy and faith behind these startups. Maybe they could have found their career choice in Silicon Valley. Instead, they chose to use this opportunity to address the power transition dilemma in India.
Anjali Bansal runs Avana Capital, India’s first and largest climate-tech venture capital fund, and sees hundreds of deals every quarter. “This is just the beginning,” she said. Sustainability, like the digital revolution, will be the next big sea change “and therefore a huge and attractive opportunity to invest in technology for global green solutions”. “We have a lot of construction to do – we can do it right from the start,” she said, recognizing that as the country grows and its energy consumption increases.
While early-stage investment around climate technology is booming, there is still a lack of domestic venture capital for later stages, when working capital must be increased: the missing middleman. This forces entrepreneurs to understand the value of their companies now and be proactive about tapping into international capital for future fundraising.
Meanwhile, climate technology is different compared to traditional technology investment. The first asset-light includes investing not only in software solutions, but also in manufacturing, hardware and research and development for product innovation. That means if you want a global venture fund in the energy transition, especially when it comes to gestation and exit, says Priya Shah of climate technology fund Tia Ventures.
For now, climate technology investors can come in at reasonable valuations, or relatively small ticket sizes in the early stages. Global VCs sitting on the sidelines should take note: From guarding the herd and squeezed multiples, this may be the time and place to make their dry powder.
More from Bloomberg Commentary:
• Venture capital has a battery blind spot: Anjani Trividi
• Tiger’s Global Day of Reckoning Will Never Come: Shuli Ren
• Where Blackrock sees value in its biggest Indian IPO: Andy Mukherjee
This column does not necessarily reflect the views of the editorial board or Bloomberg LP and its owners.
Anjani Trivedi is a Bloomberg opinion columnist covering industrial companies in Asia. She was previously a reporter for the Wall Street Journal.
More stories like this can be found at bloomberg.com/opinion
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