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Investing in Climate - This Generation’s Business Supernova
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Investing in Climate - This Generation’s Business Supernova

October 23, 2020

Investing in Climate - This Generation’s Business Supernova

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.

  1. Reducing carbon emissions - shorthand for “electrify everything and switch the source of electricity to renewables”.
  2. Drawing down existing carbon from the air - through low-tech means like reforestation, or high-tech ones like Direct Air Capture.
  3. Creating Sustainable Lifestyles - On a macro and micro scale - vertical farms, circular economy, sustainable waste management.
  4. Adaptation & resilience to Climate Consequences- disaster-preparedness, drought-resistant crops, smarter climate insurance.

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:

  • India’s electric grid. It isn’t smart, it isn’t decentralized enough and it isn’t financially solvent. That makes it harder to scale things like solar services businesses (so no SunEdison) and renders impossible business models like connecting EVs to the grid (so no Weavegrid).
  • India’s fragmented agricultural sector. This means it’s hard to find large buyers who can take a medium-term view of their agricultural holdings and the climate risk they face (no Climate.ai).
  • India’s lack of regulatory framework (or the teeth) to mandate anything, including building efficiency standards (no 75F).
  • Finally, the Indian consumers' inability to pay market prices for clean air & water after the distortionary subsidies we’ve become used to.

PS: All of the companies linked above were started by Indian-origin founders. Just not in India!

So where might the opportunities lie? 

  1. For better or for worse, in India we often conflate climate change with pollution. That gives us a clue on where we might find future consumer adoption AND favourable regulation. Yulu is a great example of the former. And an example of the latter is India’s highly progressive EV regulation that has spurred a bunch of business model innovation. Examples include companies like Mozev (electric bus fleet for operators) and Three Wheels United (financing play to substitute auto-rickshaws with electric ones)
  2. In building data infrastructure that the world needs. As industries find their legs in the climate space, there’ll be a massive hunger for data and the entire stack built on top of that. Two companies from within the SAE portfolio show this well. Blue Sky aims to be the Bloomberg for environmental data, betting on the belief that as ESG becomes an important lens for investing, sophisticated financial players (insurers, large asset managers) will need a near real-time auditing capability on the environmental footprint of their portfolio. I imagine something similar will happen as the global carbon offsets market takes off and India becomes a favored destination for such projects. The world will need companies that can audit forests and soil on a real-time basis. Another portfolio company, Pixxel, is going one step lower down the stack, launching micro-satellites that can gather “hyperspectral” imagery that can help visualize effluent runoffs and cropland performance better than what’s possible right now. 
  3. In building pure consumer internet plays that tap into a global citizen’s hunger for climate solutions. The segment of climate-woke individuals, especially amongst the younger demographics, is becoming a sizable segment. My company Terra.do (also another SAE portfolio company!) is an online climate school that taps into the growing demand amongst individuals across the globe to figure out a way to use their skills to work on climate problems. An astonishing percentage of our customers are from India. I can imagine climate-focused variants of Kickstarter, Stackoverflow and even Linkedin getting built out over a period of time as this segment becomes deeper.

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.

About the Certificate
12 weeks long. Between 6-10 hours of time commitment every week
Each class is just 20-25 learners with extensive skills, background, passion
Instructor & Teaching Assistants available via Zoom, Slack and email
100% online, with 5-7 expert live talks. All available for later viewing
See Curriculum
Climate Change: Learning for Action
Interactive program with an instructor walking you through the paces
12 Weeks

Next cohort starts

February 2021
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* If you work at a non-profit, let us know when you apply

Frequently asked questions
Who would benefit most from this program?
Anyone who wants a grand overview of the entire climate landscape. Anyone who wants to shift their time & energy into doing climate work.
What if I don't like the program?
If you're less than 3 weeks into the program, we'll refund you 100%. Our only request would be to give us feedback so we can improve the program.
Will the classes fit my schedule?
Yes. Most of the classes are asynchronous so you can decide when to go through them during the week. Our expectation is that everyone will be back in sync when a new week starts. The main live elements are the expert talks which will also be recorded for later viewing.
Is there a credential at the end of the program?
Yes. We'll give you something to prove that you completed this program. However, we're hoping you're doing this program for the intrinsic love of solving climate change.
I can't afford the program cost. Can I get help?
We want all qualified learners to apply, regardless of financial status. Let us know about your financial need when you apply and we'll do our best.
Are you going to be running more cohorts?
Yes. We currently expect to run more cohorts in Oct & Dec 2020.
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