Report Finds Funding Slowdown as Investors Prioritize Profitability
India’s climate tech sector, which saw a surge in investment in recent years, is experiencing a slowdown, according to a new report by consulting firm FSG. The report, titled “India’s Green Revolution 2.0 – Trends Shaping India’s Climate-Tech Sector,” found that investments reached only $2.85 billion by November 2023, representing just 57% of the total investment garnered in 2022.
While the overall trend remains positive, with a 29% increase in funding from 2019 to 2022, the recent decline suggests a shift in investor focus.
“Despite short-term fluctuations, the long-term growth trajectory of India’s climate-tech sector remains promising,” said Rishi Agarwal, MD and Head-Asia at FSG. “The recent decline reflects a sharper investor focus on profitability, indicating a maturing market.”
Mobility and Energy Lead the Way
The report found that investment activity is primarily driven by the mobility and energy sub-sectors, which together captured over 94% of total climate tech investments between 2019 and November 2023. This highlights the crucial focus on clean transportation and renewable energy in India’s climate goals.
Disparity Between Emissions and Funding
However, the report also identified a concerning trend: a mismatch between emissions contributions and funding allocation. The energy sector, the biggest contributor to greenhouse gas emissions (38%), received a whopping 74% share of climate tech investments on average between 2019 and 2022.
Meanwhile, sectors like industry, manufacturing, and agriculture, which contribute significantly to emissions (around 50% combined), received only about 4-5% of the total investments.
“For climate action to be effective, investors need to realign their focus,” said Agarwal. “Diversifying funding towards sectors with high emissions is crucial to achieving meaningful reductions in greenhouse gases.”
The Road Ahead
The report comes at a pivotal time as India prepares for general elections. FSG emphasizes the need for climate innovation to be a national priority, urging political parties to incorporate policies that support climate tech solutions.
With growing awareness and government incentives, India’s climate tech sector holds long-term promise. However, ensuring sustainable growth requires both investor focus on profitability and a strategic realignment of funding towards sectors with the highest emissions impact.