A Wake-up Call For Investors To Invest In Sustainable Startup Ecosystem

An evaluation of how companies perform is measured based on the people around, their environment, and their responsibility. These sets of standards, known as ESG, have become essential factors in financial analysis

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A growing number of investors recognize the value of the sustainable business. The global challenge of climate change undeniably poses an immense threat, however, clever entrepreneurs are finding ways to turn climate risk into business opportunities.

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Traditionally, the decision on where to invest was predominantly based on the level of financial returns. But as the world continues to evolve, with investors setting up new standards, more criteria are being introduced in the decision-making process.

Today, an evaluation of how companies perform is measured based on the people around, their environment, and their responsibility. These sets of standards, known as ESG, have become essential factors in financial analysis.

With the impact of COVID-19 on global economies, many investors saw an intensified need to consider ESG strategies as a more sustainable investing approach. As a result, a lot of start-ups started to catch up on the trend. In fact, more than 60 per cent are already applying ESG strategies in their company structures.

At the TiE Sustainability Summit 2021, some early movers among green/sustainable investors which includes Nilesh Shah, managing director, Kotak Mahindra Asset Managemet Co. Ltd; Sunil Goyal, managing director and fund manager, YourNest Venture Capital and Nakul Zhaveri, partner, Relativity Investment Management, spoke to extend an open invitation for others to follow suit.

Goyal believes that the inevitability of climate change makes the case for tackling issues head-on compelling to early-mover businesses. However, a new breed of entrepreneurs is currently emerging: one that goes beyond “tackling”, but rather embraces climate change issues and risks to the extent that their value offering directly targets climate change adaptation or mitigation.

To this, Shah shared, “Investing in cleantech and green capital is crucial to enable the necessary transition to a more sustainable low-carbon economy and society. Moreover, companies that deliver solutions that directly or indirectly address global sustainability problems represent clear growth cases. Investors who want to make smart, profitable, and resilient investments onwards need to look to investment cases that somehow tap into sustainability issues and -solutions.”

“Some investors still carry the outdated view that all forms of investments linked to ‘green’ are unprofitable and too volatile. We need to eradicate those misconceptions,” Zhaveri added.

The change in investment narrative around climate change solutions, a favorable regulatory landscape, and availability of scalable climate ventures are helping

While COVID has disrupted the economy worldwide, fund flows in green businesses have been resilient. As per the latest market report of the Climate Bonds Initiative (CBI), the quantum of green, social, and sustainability instruments in 2020 has steadily risen to $700 billion, which is almost double the amount issued in 2019.

The Indian climate-driven startup ecosystem too could not have seen a better time for fund-raising. In the past two years, more than eight cleantech startups (not including electric vehicle startups) received funding of more than $1 million. These companies encompassed a range of sectors such as plastics, tech-enabled recycling, energy efficiency, and biofuel, among others.

Clearly, the funding ecosystem for green startups has started growing manifold. Hopefully, the current crop of companies that have received investments can scale up and provide meaningful exits to their investors, and catalyze the investments even further.