Funding High in India’s Climate-Tech Sector Slowed Down in 2023: FSG Report

New Delhi, April 7, 2024: India’s climate-tech sector, which had experienced significant growth in recent years, witnessed a funding slump towards the end of November 2023, revealed a new report by consulting firm FSG. The report points out that till November 30, 2023, the sector attracted just about US$ 2,853 million, which was only 57% of the funding it had received in 2022.

According to the report, titled, ‘India’s Green Revolution 2.0 – Trends Shaping India’s Climate-Tech Sector’ much of the investments in climate-tech were directed towards the sub-sectors ‘mobility' and 'energy'. Both the sub-sectors are known to have collectively secured over 94% of the total investments in the sector from 2019 to 2023 (November) in India.

However, the report points to a wide variance in the funding received by the various sub-sectors given the percentage of emissions they contribute. While the ‘energy’ sector accounts for 38% of total emissions, it secured a massive 74% share of the total investmentsin climate-tech. Other emissions-intensive sectors like ‘industry, manufacturing, and resource management’ and ‘food, agriculture, and land use’, however, collectively received only about 4-5% of the total investments over the same period when they, too, account for more than 20 per cent of the total emissions. The ‘financial services’ sub-sector received less than 1% of the total while ‘Greenhouse gas (GHG) capture, removal, and storage’ and ‘climate change management and reporting’ received insignificant shares of the investments.

Commenting on the report, Rishi Agarwal, MD, Head-Asia, emphasised the significance of prioritizing climate solutions in India's national agenda, especially as the country prepares for upcoming general elections. He urged political parties to incorporate policies supporting and accelerating the adoption of climate-tech solutions to demonstrate commitment to a greener and more sustainable future.

A significant increase in awareness among businesses and the general public along withgovernment incentives have primarily driven growth in the climate-tech sector in recent years.

Interestingly, despite temporary setbacks due to economic disruptions induced by COVID-19, India’s climate-tech sector has demonstrated resilience by registering an overall funding increase of 29% from 2019 to 2022.

Agarwal says, “Despite short-term fluctuations, the long-term growth trajectory of India’s climate-tech sector remains promising, underpinned by increasing awareness and government incentives. The recent decline in late-stage investments reflects a sharper investor focus on profitability. While this may cause short-term deceleration, it also indicates a maturing market where investors are seeking sustainable and financially viable solutions. The slowdown also highlights the need for climate-tech companies to demonstrate clear paths to profitability to maintain investor interest in the long term”.