Can you dissect the spectrum of climate investments from an investor perspective?

We are active investors for the last 10-15 years in the US, Latin America and India market. I have seen the Climate investment space evolve and it is currently in its third innings. Back in 2009-10, from an India perspective, it was largely renewable energy, and we invested in two of the largest platforms, Greenko and Renew Power. Second innings was in the last decade when it got broader and evolved into water and energy efficiency space. Now, as an investor, we are in an exciting innings and it is more holistic, beyond carbon emission mitigation. We are looking at climate adaptation which means increasing the resilience of climate. We are seeing companies in food and agriculture sector experimenting on crop nutrition and yield; we are starting to look at supply chain which constitutes more than 70% of a company’s carbon footprint.

What kind of companies is GEF Capital looking at for investments?

We are looking at climate technology companies which can help map where in the supply chain we can decarbonize. Our favourite space, last year, was electric vehicles (EVs) but timing is very important. Our journey began in 2008 with an investment in Reva Electric car. It was a great company but in a wrong country and timing as policy tailwinds didn’t exist at that time. Today, EV is a fantastic way to play the climate theme as 30% carbon emissions come from transportation. So GEF has committed close to $500 million over the last 12 years in India in 16 plus deals across renewable, water, agri sectors etc. Last year was very exciting for us and we invested in two firms – Ratan Tata-backed Electra EV and Hero Motors, both mid-market growth companies. I believe that the climate financing need in India is close to $1 billion each year and a lot more private-public-partnership is important.

You said timing is important. Why do you think it is now?

The green budget that was announced this year spoke about seven items (relating to the climate theme) including net zero carbons, agri, battery storage, hydrocarbons, etc. It mentioned drone technologies for precision agriculture and lot of focus on battery technologies. In the last three months, no investor meetings have ended without any discussion on green hydrogen. That’s a great example of tremendous potential the space holds…We look at a 5–7-year time horizon and want to see if a product can also be commercially viable to be scaled. So, while we look at multiple climate technology themes, the timing of market adoption is one of the most important aspects. There is a lot of debate on some of the technology in green hydrogen to take off. They will need a lot more policy tailwinds. The EV adoption would not have happened without the freight subsidy provided. So, some technologies need that push.

The timing for climatetech-focused investments is ripe for market adoption with potential to grow 2-3 times of India’s GDP over the next 5-7 years, said Raj Pai, one of the founders and managing partner at GEF Capital Partners. In an interview, Pai, who co-heads the firm’s investments in South Asia, said the electric vehicle industry is at an inflection point with adequate market and policy push so far, and is set to take off without further tailwinds from the government. Edited excerpts:

Can you dissect the spectrum of climate investments from an investor perspective?

We are active investors for the last 10-15 years in the US, Latin America and India market. I have seen the climate investment space evolve and it is currently in its third innings. Back in 2009-10, from an India perspective, it was largely renewable energy, and we invested in two of the largest platforms, Greenko and Renew Power. Second innings was in the last decade when it got broader and evolved into water and energy efficiency space. Now, as an investor, we are in an exciting innings and it is more holistic, beyond carbon emission mitigation. We are looking at climate adaptation which means increasing the resilience of climate. We are seeing companies in food and agriculture sector experimenting on crop nutrition and yield; we are starting to look at supply chain which constitutes more than 70% of a company’s carbon footprint.

What kind of companies is GEF Capital looking at for investments?

We are looking at climate technology companies which can help map where in the supply chain we can decarbonize. Our favourite space, last year, was electric vehicles (EVs) but timing is very important. Our journey began in 2008 with an investment in Reva Electric car. It was a great company but in a wrong country and timing as policy tailwinds didn’t exist at that time. Today, EV is a fantastic way to play the climate theme as 30% carbon emissions come from transportation. So GEF has committed close to $500 million over the last 12 years in India in 16 plus deals across renewable, water, agri sectors etc. Last year was very exciting for us and we invested in two firms – Ratan Tata-backed Electra EV and Hero Motors, both mid-market growth companies. I believe that the climate financing need in India is close to $1 billion each year and a lot more private-public-partnership is important.

You said timing is important. Why do you think it is now?

The green budget that was announced this year spoke about seven items (relating to the climate theme) including net zero carbons, agri, battery storage, hydrocarbons, etc. It mentioned drone technologies for precision agriculture and lot of focus on battery technologies. In the last three months, no investor meetings have ended without any discussion on green hydrogen. That’s a great example of tremendous potential the space holds…We look at a 5–7-year time horizon and want to see if a product can also be commercially viable to be scaled. So, while we look at multiple climate technology themes, the timing of market adoption is one of the most important aspects. There is a lot of debate on some of the technology in green hydrogen to take off. They will need a lot more policy tailwinds. The EV adoption would not have happened without the freight subsidy provided. So, some technologies need that push.

Does EV segment still need further push?

EV segment has reached an inflection point now and will take off on its own. Last year, India sold 1 million EV units. While this is still less than 3-4% of the auto sector, the expectation is this will jump to 30% in the next four years and this is 6x growth.

How is India placed in terms of investor return perspective?

From exit point of view, we are starting to see interesting trend of Indian companies being attractive from investor and M&A perspective. Lot of investors also diversifying their fossil fuel investments due to regulatory compulsions and so all that capital we are seeing coming into sustainable and high-scoring ESG compliant firms.

EV segment has reached an inflection point now and will take off on its own. Last year, India sold 1 million EV units. While this is still less than 3-4% of the auto sector, the expectation is this will jump to 30% in the next four years and this is 6x growth.

How is India placed in terms of investor return perspective?

From exit point of view, we are starting to see interesting trend of Indian companies being attractive from investor and M&A perspective. Lot of investors also diversifying their fossil fuel investments due to regulatory compulsions and so all that capital we are seeing coming into sustainable and high-scoring ESG compliant firms.