Northern Arc Gets $65 Mn For Maiden Climate Fund

SUMMARY

Northern Arc secured $65 Mn in debt commitments: $50 Mn from US DFC and $15 Mn from Austria's OeEB

The GIFT City-based climate fund will focus on debt financing for solar energy, green buildings and sustainable agriculture companies

The fund launch comes within a month of Northern Arc announcing a INR 1,500 Cr AIF with INR 500 Cr green shoe option

Non-banking lender Northern Arc has secured debt commitments of $65 Mn for its maiden climate fund.

The Chennai-based NBFC has received debt commitments of $50 Mn from the United States International Development Finance Corporation (DFC) and $15 Mn from OeEB, the Development Bank of Austria.

The GIFT City-based climate fund will focus on providing debt financing to growth-stage companies operating in sectors such as commercial, industrial, and residential solar energy, energy efficiency, green buildings and sustainable agriculture, the NBFC said in a statement.

“This transaction aligns with DFC’s goal of expanding financing for small and medium sized businesses that are promoting climate mitigation action and resilience through innovative technology including in the energy, agriculture, and e-mobility sectors,” said Justin Andrews, DFC’s acting vice president of small business and financial services.

The climate fund marks Northern Arc’s entry into dedicated climate financing. The fund will also focus on businesses innovating in the circular economy, water segment and adaptation technologies.

“By channeling these funds into green projects across our focus sectors of MSME, Affordable Housing, Vehicle Finance, Agriculture Finance, Microfinance and Consumer Finance, we aim to create a cascading effect that promotes sustainable development,” said Ashish Mehrotra, managing director and chief executive, Northern Arc.

Bhavdeep Bhatt, CEO, Northern Arc Investment Managers, said “For net zero to become a reality, there is a need to fund climate-focused SMEs to promote sustainable practices at the grassroots level. However, the SMEs often struggle to access sufficient growth funding, highlighting the need for tailored underwriting approaches that consider their unique value propositions and financing needs.”

The latest fund comes within a month of Northern Arc announcing a INR 1,500 Cr ($178.5 Mn) category-II alternative investment fund with an additional green shoe option of INR 500 Cr. The company’s subsidiary Northern Arc Investment Managers (NAIM) has successfully closed and exited four funds at higher-than-targeted returns.

Founded in 2009, Northern Arc has facilitated financing of over INR 1.9 Tn across 686 districts in India, impacting over 111 Mn lives. The company focuses on key sectors including MSME financing, microfinance, consumer financing, vehicle financing, affordable housing financing and agricultural supply chain finance.

The firm counts IFC, Sumitomo Mitsui Banking Corporation, LeapFrog, 360 ONE, Accion, Affirma Group, Dvara Trust, and Eight Roads among its investors.

Northern Arc manages an AUM of INR 151,210 Mn through its balance sheet and active AIF funds as of September 30, 2024. The company has completed 6 successful fund exits with net returns of 11.72%-15.77% post expense pre-tax.

The investment comes at a time when several VC firms are increasing their focus on climate tech, with Avaana Capital recently closing its climate fund at $135 Mn last month, exceeding its initial target of $100-120 Mn.

The sector has seen increased fund activity in 2024, with SIDBI securing $24.5 Mn from Green Climate Fund (GCF) for its maiden sustainability fund in March. Climate tech venture studio NOW also launched a $2 Mn fund for early-stage deeptech startups in the same month.