The Need For Climate-Tech And Sustainability Investments In India

The ESG goals are a set of standards for a company's operations that force companies to follow better governance, ethical practices, environment-friendly measures and social responsibility

Climate technology refers to using scientific and technological advancements to mitigate and adapt to the impacts of climate change.

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India’s securities regulator, SEBI, in its March 29 board meeting, has approved the much-awaited regulations for environmental, social, and governance (ESG)-related disclosures, certifications, and labelling. The ESG goals are a set of standards for a company's operations that force companies to follow better governance, ethical practices, environment-friendly measures and social responsibility. Environmental criteria consider how a company performs as a steward of nature.

What we see mostly today is thriving consulting firms proposing a structured reporting system for ESG compliance and rating. While it is a nice-to-have policy for a large economy like India, is there really meat on the bone?

Many questions arise like; where are the supply chain partners who can fulfil these criteria? Is there a certification for products that fit ESG metrics? What does an MSME supplier need to do to qualify as an approved ESG vendor? Does this require a big change or just tweak existing processes? Is this only about reporting? What is the long haul?

All the buzz is currently centred on risk mitigation activities, reporting, and classification.

Value creation is undefined and unclear at best. For example, how can a technology be classified as a potential ESG contributor?

Let’s take a step back and look at where it all started. Today, every country has faced the challenge of changing climate and its impact. India being in the forefront of the start-up world, it is important to evaluate value creation on the basis of a start-up or technology’s contribution to its impact on climate.

Climate technology refers to using scientific and technological advancements to mitigate and adapt to the impacts of climate change. A combination of traditional concepts like solar energy to more recent carbon capture technologies can fall into this segment.

However, this is such a broad term that the depth of scientific or technical know-how is limited under a broad umbrella of climate tech or impact investment. Most start-ups or technologies may not even be aware that they may be heavily contributing to this unless a guideline and a self-evaluation metric is shared by these investors to embrace and to be able to communicate effectively to embrace this cohort.

With recent developments and in a post-Covid era, it is clear that India is poised to attract a lot of investment. A recent study published that over $400 trillion capital is available globally to invest in climate tech and environmental impact. For this to flow in India, it will mostly be as a growth capital. Hence, it is important for existing players to pave the way both by investing and mentoring likely tech start-ups to understand and communicate the value in the right way for the next stage of growth.

One important aspect to consider is that the need of initial capital is way too small for an Indian start-up compared to developed countries. Seed funds in India also have been structured with a very short life cycle owing to the examples set by many unicorns across different verticals such as, edutech, fintech to name a few.

A solar tech business model may be easier to understand, whereas a green chemistry technology requires specialised domain knowledge and longer turnaround time to show significant impact with deep pockets.

For long-term success in climate tech, it requires a sea change starting from longer fund life cycle to deeper understanding of the technology and business models with an added effort of re orienting a start-up to acclimatise with the global concept of climate impact. India can win if climate tech investors can bridge the gap between technology and commercialisation and support access to larger players and help them engage early with budding start-ups.

The writer, Naveen Kulkarni, is the CEO of Quantumzyme.

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