As the world’s third-largest carbon dioxide equivalent emitter, India is at a critical crossroads, balancing ambitious environmental goals with economic development. At COP29, it was vocal in its disapproval about inadequate climate finance by developed nations. Back at home, it has been taking some material, policy-led climate action. But, climate finance for startups in India, catalysed by policy support, seems to be becoming lopsided.

India’s international climate approach has evolved

About a decade ago, at COP21 (2015), India submitted its first Nationally Determined Contributions (NDCs) and introduced three key targets: (a) reducing emission intensity relative to GDP by 30-35%, (b) achieving 40% non-fossil fuel-based electricity capacity, and (c) creating an additional carbon sink through forestry by 2030. At COP26 in Glasgow (2021) India unveiled “Panchamrit” – five nectar elements of climate commitments. These included (1) reaching 500 GW of non-fossil energy capacity, (2) generating fifty percent of India’s energy requirements from renewable energy, (3) reducing total projected carbon emissions by one billion tonnes, (4) reducing the carbon intensity of the economy by 45 percent (over 2005 levels) – these four objective to be achieved by 2030, and (5) achieving the target of net zero emissions by 2070. In 2022, India also revised two of its NDCs and raised the bar on them – the emission intensity reduction target (4) and the non-fossil fuel electricity capacity goal (1) – by 10 percent. At COP27, India submitted its Long-Term Low Emission Development Strategy (LT-LEDS) laying down specific requirements for technology transfer from developed countries to accelerate climate action. At the recently concluded COP29 in Baku, India was vocal about the inadequacy of climate finance commitments from developed nations.

Climate finance is central to making material progress on climate innovation and goals

The impact of climate change is/will be felt by everyone, albeit unequally. Notwithstanding their geographic disadvantages, developing economies will especially experience the twin pressures – effects of climate change and increased financial pressures to mitigate, adapt to or build resilience for the effects of climate change. The longstanding commitment from developed nations to provide $100 billion annually to developing countries remains largely unmet, slowing climate action across the global south. Much of this funding has been in the form of loans, therefore adding to the developing nations’ financial pressures in addition to their climate vulnerabilities. At COP29 last week in Azerbaijan, this commitment was bumped up to $300 billion but it falls remarkably short of the $1.3 trillion needed by the global south to meaningfully address climate change and its effects, while not slowing down their economic progress. In the last few years particularly, the Indian government has started to take dedicated measures for climate financing. This includes the successful sovereign green bond issuance raising $1 billion in 2023 and the initiating work on building a taxonomy for climate finance in the Union Budget 2024.

Inadequate climate finance is a problem for governments and startups alike

If we were to look back a decade, we find that the startups’ trajectory somewhat mimics the pathway of the Indian government’s climate commitments. As of March 2024, there were over 800 active climate tech startups in India. Over 2500 climate tech startups were founded in the last 10 years. Of which about 1700 climate tech startups shut down – that roughly means one climate tech startup shutting down every second day in the last 10 years! It wouldn’t be surprising to find out that most of these companies shut down for want of funds.

Of the 800 currently active climate tech startups, only about a quarter, i.e. roughly 230, have raised capital of over $3.6 billion in total. About $2bn has been deployed for early stage experimentation and technology/product/solution development, while the remaining has gone into growth stages. When we look at these numbers a little more closely, we find two patterns that merit attention.

Climate finance in startups is almost entirely limited to emission mitigation

First, almost all the funding has gone into startups building emission mitigation products and solutions. (side note: climate action predominantly encapsulates solutions for emission mitigation, climate change adaptation and resilience building). In numbers, $3.4bn (out of 3.6bn) has been invested into products and solutions that are mitigating emissions and barely any, i.e. ~$200k into products and solutions that help adapt to or build resilience towards climate change. Emission mitigation has been central to the Indian Government’s stance on climate action. Like we mentioned earlier, India’s NDCs at COP21, Panchamrit at COP26 have been centered around emission mitigation. These commitments have translated into policy and schematic action within the country, the effect of which has cascaded into climate tech startups as well.

We aren’t saying that mitigation isn’t important. It is critical, to say the least. India is the third largest carbon dioxide (equivalent) emitting country in the world. And on our path of economic development, our emissions are likely to continue remaining high. Decarbonising emissions, hence, is an imperative that the policymakers recognise and innovators are taking up to solve. However, adaptation and resilience aiding solutions are as critical. India is the seventh most vulnerable country to extreme climate events. Between January – September, 2023, India experienced an extreme climate event on almost each day of the year, leading to a loss of about 3000 lives and destruction of about 100,000 homes. It is, thus, urgent to build solutions to aid people, communities, businesses better cope and emerge from extreme climate events and shocks that are becoming more frequent and severe.

Climate action beyond EVs

Secondly, of the $3.6bn raised by climate tech companies, about $3bn has gone into mobility startups; $2.6bn into growth stages, while a smaller remaining corpus ~400k into early stage startups. The electric mobility sector in India has received strong policy support. In addition to several other initiatives, the FAME (1, 2 and soon-to-be-announced 3) schemes that subsidised the cost of acquisition of electric vehicles, created an impact where it mattered – improve the financial viability of owning an electric vehicle for the end customer. The widespread adoption of electric mobility is a proof of the impact of this policy-catalysed change. However, looking back at emissions data, transport (including road, rail, airways; passenger and commercial) constitutes just about 10 percent of India’s total emissions. Other sources of emissions haven’t received as much policy nor investor attention. For instance – industrial emissions add up to almost 30% and given the thrust on industrialisation and manufacturing, this figure is likely to scale up faster. There are more than 100 schemes and policies (spread across ministries and departments) to aid decarbonisation across different sectors and especially the hard-to-abate sectors like steel, cement etc. Several large industrial behemoths like the Tatas, Hindujas, Aditya Birla Group among several others actively partner with or acquire climate tech startups in their pursuit of decarbonisation. However, the startup funding into industrial decarbonisation startups hasn’t yet caught up with the market momentum and emerging policy support.

While they are important, India’s climate action requires work beyond emission mitigation and electric vehicles. It requires richer policy support so as to de-risk private capital flowing into more cutting edge climate technologies and solutions that aid adaptation, resilience, as well as decarbonization across sectors. The 800+ climate tech startups signal strong entrepreneurial intent towards solving the hardest climate challenges. Policy support and finance will be the levers that convert the intent into (climate) action.