Tick tock, tick tock, we're on the clock

Welcome to this edition of Hedwig—a bimonthly newsletter that gives you a bird’s eye view of the Asian startup and investor community.

Climate tech edition

"The climate time bomb is ticking."

It’s not like we haven’t heard this phrase before. But what’s different now is that we know when it will blast. And that's not so far away.

What this means is Earth doesn't have as much time as we thought we had to prevent the catastrophic consequences of global warming.

A major report by the UN's Intergovernmental Panel on Climate Change released last week warned that the global average temperature will rise 1.5°C above the preindustrial levels (1850-1900) in the first half of the 2030s if we continue to use fossil fuels.?

Earlier, the estimate was that the world would this critical threshold around 2040. Almost two decades later.

And why is the 1.5°C threshold that significant? Eight years ago, 196 countries agreed to cut carbon emissions to keep the global average temperature well below 2°C, preferably at 1.5°C at COP21, in what came to be known as the Paris Agreement.?Because researchers worldwide believe that if the temperature globally rises above that, the consequence would be dire—extreme heat waves, flooding, drought, crop failures, and species extinction among other things.?

Earth has already heated to around 1.1°C above pre-industrial levels and the temperature will rise by a shocking 2.7°C by 2100. The UN said this in a 2021 report, but not many would bother about something that’s happening far, far into the future.?

However, the findings in the recent report have put us on the clock. Act now, otherwise, it will be too late to act.?

The report researchers say we will have a glimmer of hope if industrialized nations can halve greenhouse gases by 2030 and reduce carbon emissions altogether by the early 2050s, the world would have about a 50% chance of limiting global warming to 1.5°C.

Then there is a more depressing report, along the same lines, by Standford researchers. It says the global average temperature would rise by 1.5°C by early 2030, even if we cut down emissions. And that we would cross 2°C by 2050 if emissions remain high.?

These predictions were made by an AI model earlier this January and published in the Proceedings of the National Academy of Sciences. But as humans, we do not lose hope. Besides, AI could be wrong, from what we have seen in the past few months of ChatGPT and Bard coming alive.?

Back in India, a still-developing economy, the government has committed to reducing carbon emissions per unit of GDP by 45% by 2030 and achieving a net zero emission target by 2070. Being the third largest contributor of carbon dioxide, it has to step up to take responsibility.?

Beyond the government-level policy-making and push, India Inc. has also swung into action, evident from the increasing interest, investment, and support toward climate tech solutions.?Although, the climate tech action is still majorly led by EVs. As per global research firm HolonIQ,?in India, climate tech funding zoomed to US$3.7 billion in 2022 from US$400 million in 2021.

And India will see more of it in the coming years. Here is why:

Large and growing market size

India is the world’s most populous country, with a middle class that would cross 700 million by 2030.?

“This presents a significant market opportunity for emerging climate tech start-ups to develop and offer affordable and sustainable solutions to meet the needs of this population,” according to Atit Danak, Partner and Global Head-Innovation & Start-up Collaboration at Zinnov.

Researchers at HolonIQ believe VCs have already realized this, which is why the country is seeing a transition from a consumer-focused VC environment to climate tech becoming a preferred investment category. In short, investors are realigning their focus to include climate tech, with sustainability and ESG metrics becoming more important than ever.?

Government support

The Indian government has earmarked a US$4.3 billion investment in this year’s budget for green energy and curbing carbon emissions. That speaks something about the country’s seriousness on this matter.?

The big idea is to develop as much clean energy as possible, facilitate the transition from fossil fuels to green energy, and adapt to the effects of climate change.

The country plans to invest massively to become a leading supplier and producer of green hydrogen. Parallelly, it will promote the transition to a low-carbon energy economy with capital investments, financial incentives, and favorable regulatory policies for initiatives like battery energy storage, old vehicle replacement, and natural farming. And, for mitigation and adaptation, there will be incentives doled out for environmentally sustainable and responsive actions by companies, individuals, and local bodies.

While these may not directly back climate tech startups, they do provide a conducive environment for their growth.

Talent availability?

It’s no secret that India has a humongous pool of talented engineers, scientists, and researchers who have been driving innovation in the country. Hence, the thriving, booming startup ecosystem. That innovation is now trickling into the climate tech sector.?

According to Shauraya Bhutani, co-founder of Capital Connect Advisors and founder at Breathe Capital, an increasing number of people are becoming more aware of the climate change impact and want to contribute at an individual level, which is why climate tech has begun to attract the best talent in the industry.

Moreover, Bhutani predicts in the next five years, climate funding would grow at least by 5x and agritech, food tech, and circular economy will command a lion’s share of the financing. In a recent interview with Financial Express, he said the smart talent realizes there is good money to be made in the climate sector as it will continue to attract investments for decades to come.

And this availability of talent affordably will help climate startups strive and thrive.?

“The cost of talent in India is relatively low compared to other developed countries, which can help start-ups save on operating costs and sail through a tough economic environment and build resilience,” believes Zinnov's Danak.?

Access to international markets

India is known for its top-class talent, world-over.?But the advantages India has, go beyond just that, as per Danak. The list includes emerging innovative solutions that address issues ranging from essential needs to climate change; a massive market to experiment and scale those solutions; and the ability to build solutions in India for the world.

More importantly, India has partnerships with other countries that can give a boost to startups, especially those in the climate tech sector. After all, climate change is a global threat. As such, it has pacts with the US, EU, Sweden, Singapore, and Canada on supporting clean energy and climate technologies.

India is well-positioned to “provide climate tech start-ups access to international markets," Danak says.

Impactful solutions

This is the most significant factor. VCs don’t have any doubt India will emerge as a powerful climate tech hub, with existing innovation and talent in the country.?

There is a pressing need to address environmental challenges, both locally and globally. Realizing the demand and potential for climate tech solutions to grow, more and more entrepreneurs are jumping into the climate solutions space.?

There are startups working on broader themes like decarbonization, smart and sustainable farming, circular economy and waste management, electric vehicles, alt-proteins, and green construction.?

These startups often have to collaborate with local bodies and regulators to develop guidelines and regulations to make sure their solutions would reach the market. For instance, EV startup Ather Energy worked with regulatory bodies to develop policies that would support the growth of the EV industry in India. Another startup, Daily Dump , which produces composting products and provides waste management solutions, worked with local government bodies and waste management experts to develop a decentralized waste management policy for Bengaluru.?

Then there are others, building solutions that let consumers and businesses cut down their carbon footprints.?

To give an example, ZunRoof produces smart solar energy solutions for residences, which can help individuals reduce their dependence on coal-generated electricity and cut down electricity bills. Similarly, Lowsoot helps businesses to move toward sustainability and net zero emission.?

What about challenges? As usual, there is a but in the story. Climate tech can truly take off in India, but…the country needs better infrastructure and rural connectivity, clear regulations, and specialized talent, Danak believes. In addition to sustained funding, of course.?

That’s all for the final part of the VC edition of Hedwig. For a periodic overview of different segments of the Asian startup ecosystem, subscribe to Hedwig.

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