Terra.do founder Anshuman Bapna writes on the future of climate investments and how green tech could be this generation's fastest growing, and most unpredictable, investment opportunity. Looking at India as a case study, explore the hurdles and opportunities of climate conscious investment and how everyone can join this growing sector.
I'm going to spare you the polar bears. Or even the future of your children. Instead, when we talk about investment opportunities in climate, let us start with a familiar analogy and see how far it takes us.
Climate in 2020 is like the Internet was in 1998.
Within the next two decades, just like the Internet, climate change is going to upend industry after industry and change their fundamental basis of competition. From energy to agriculture, transportation to construction, manufacturing to finance. And if you’re counting, those six industries add up to one third of the world’s GDP! And As IFC estimates, solutions to climate change could create upwards of $20Tr USD of economic value in emerging markets alone in the next 10 to 20 years. And just like the second order effects of the Internet were hard to gauge back then (think: Netflix was disrupting Hollywood, not Blockbuster), it’ll be the same with climate change.
Now imagine, within a decade or two, no internal combustion engines. Or the end of industrial meat. Or energy too cheap to meter. There’s incredible economic value to be created and captured at a time when entire sectors are being redesigned from the outside in. As a savvy investors, one has to start wrapping one’s head around this upheaval in order to take advantage of these tectonic shifts.
Let me see if I can get you up to speed on the opportunity that lies ahead. I think of climate solutions in four broad buckets, think of them as four broad scopes of potential investment.
Over the last 6 years, global climate tech investments have grown 5x and are now 6% of all global venture capital investments. Impressive numbers, but do understand that 63% of all those investments went into mobility & transport - that is, towards electric vehicles and the worldwide push for the electrification of transport.
But how does this play out in practice? Let’s look at India, a country that has made remarkable progress on the first bucket of decarbonizing the energy sector (we still love our dirty coal though!).
India now has among a) the highest amount of renewables addition b) the lowest cost of this energy and c) the most ambitious targets for additional capacity. Alas, renewable energy deployment, as of now at least, is a project finance game that doesn’t match venture returns - meaning that clean energy requires massive amounts of investment to chase returns under 20%. So for the purpose of this note, I’ll restrict myself to venture-fundable activity in this space - loosely called “climate tech”.
And before we get out over our skis, remember that compared to the US and even Europe, India is a significantly underdeveloped market for climate tech. There are some fundamental reasons:
PS: All of the companies linked above were started by Indian-origin founders. Just not in India!
So where might the opportunities lie?
So there’s plenty of opportunity to go around. But there’s one final thing.
I started out with an analogy to the Internet. Alas, climate change’s transformational power goes even deeper than the Internet. It will affect how we do trade and politics within national & international borders. And deeper still, the resulting wealth redistribution would likely worsen the same social justice divides we’ve always had. Expect massive refugee crises roiling the world. Or Mumbai underwater. Or, if the future is not really your thing, the fact that (arguably) India’s GDP is already one third lower than what it could’ve been due to climate change from the past 30 years!
As you can see, we're looking at a fundamental rupture with the old ways of doing things. So the key question to ask yourself is - at what level do you want to play? Is this a “sector” or is this a “mission” for you? If it’s a sector, you’ll need to get smart about the space, bide your time for the right opportunities and think in terms of portfolio allocation.
But if it’s a mission, you’ll need to bring not just your chequebook but also your network, your skills and, if I may say so, your heart, into what will often seem like an impossibly heartbreaking struggle.
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