How Climate Tech Investments Can Boost The Booming Ecosystem

Climate change is no longer a distant theory but an actual reality. Take the fires in Madhya Pradesh in April, the floods in Bangalore in September or the deficient rainfall in Jharkhand — disruptive weather events of this nature make the climate crisis more personal. 

Given the urgency, climate tech today is driven by founders willing to innovate, disrupt, and solve deep-rooted problems affecting critical mass, a feat driven by macro and micro factors that promise a different outcome from its predecessor, cleantech in the late 2000s.  

Macro Factors

Globally, tailwinds surrounding climate change reversal have been strong. The COP26 in Glasglow that was held last year had several nations come forward to outline strategies and make commitments to help slow down climate change.

India has made a bold commitment to achieving Net-Zero emissions by 2070, and the government is already taking steps in this direction. An example of this is the recent Energy Conservation Amendment Bill 2022, which introduces and encourages carbon credit trading and pushes for non-fossil sources of energy.  

More recently, a myriad of strong investor and philanthropic interests have been witnessed. For instance, Patagonia  Founder, Yvon Chouinard declared all profits from Patagonia not invested into the business would go towards fighting climate change, a sum equivalent to $100 Mn annually. Similarly, Microsoft founder Bill Gates recently infused $20 Bn towards fighting global climate and social challenges.  

Overall, mistakes from the past during cleantech’s rise are being addressed with climate tech’s resurgence.  Investments in the early-stage startup ecosystem tend to be strong, technology-first plays, as opposed to more hardware-focused in the past, suggesting strong scalability prospects, a key driver for the investment landscape.  

Micro Factors

Cleantech struggled to gain traction a decade ago, when climate change was not taken seriously. Between 2006 and  2011, VCs spent about $25 Bn on cleantech startups and about 50% of this capital was lost, and nearly 90% of cleantech startups failed to generate any returns. This was primarily due to renewable energy being too expensive as an alternative, and given the newness, it wasn’t the first choice for many. 

Today, however, renewable energy is growing in its economic viability, with costs as affordable as, if not more, than fossil fuels. This affordability has paved the way for a transition to clean energy. The flywheel is now edging towards scalability.  

Another factor is that climate change is a real and looming threat, making companies and governments actively work against it. The Indian Government has specifically encouraged startups working in the space through several incubator programs and support. For instance, Niti Aayog provided financial support for developing cleantech incubation centres and entrepreneurship, an effective grass-roots strategy. 

Furthermore, solutions today are mainly gaining momentum since they target the aspects that the cleantech effort missed. Specifically, startups are scalable, capital-efficient, and overall software oriented, making them more attractive to investors. In India, a large number of entrepreneurs are working in the climate tech space — from carbon accounting to battery swapping. 

These startups have received significant funding at early stages from various sources such as angel investors, venture capital funds, and private equity funds. However, there still appears to be a discrepancy in later stages, with a lack of funds to follow through on projects.  

India’s market for climate tech solutions isn’t just a massive technology shift but an affordable energy transition that requires several players to come together. Today, India ranks 9th in the global race for climate tech investments.  While this is encouraging, India’s climate finance requires nearly $1 Tn over the next decade to successfully work against climate change and achieve the goal of net zero by 2070. That’s a 400x increase from where we are today.