Bridging the Funding Gap for Climate - Focused Companies in Emerging Markets
India stands at the threshold of an unprecedented energy transformation, driven by surging demand, rapid renewable capacity expansion, and a bold vision to achieve energy security through domestic capabilities. As the world's third-largest electricity consumer, India's energy transition represents both the scale of opportunity and the urgency required to power the nation's economic ascent while securing sustainability.
This transformation unfolds across multiple dimensions: expanding clean generation capacity, modernizing grid infrastructure to integrate 500 GW of renewables by 2030, diversifying into new energy sectors, deploying storage solutions at unprecedented scale, and leveraging digitization to optimize efficiency. Unlike advanced economies like Europe, which focus on optimizing mature systems, India must simultaneously build new capacity and digitize operations from a lower baseline.
Research Methodology
The study investigates the key roadblocks hindering the scalability of climate solutions developed by young start-ups in EMs with a focus to India. We employ a multi-pronged research approach to analyse the factors limiting growth within the climate tech sector of these regions.
Stakeholder Insights: Conversations with Climate Ecosystem Leaders: To gather qualitative data and gain a deeper understanding of the challenges faced by young climate tech startups in EMs, we conducted in-depth conversations with over 120 key stakeholders within the climate ecosystem. This diverse group included entrepreneurs, investment bankers, and other influential individuals actively involved in climate-related initiatives. Through these conversations, we aimed to gain valuable insights into the challenges faced by companies as they attempt to scale their solutions and navigate the complexities of fundraising within the climate tech space
Comparative Analysis of Start-up Mortality Rate in Climate Sector: To corroborate the findings from interviews with climate ecosystem leaders, we conducted a comprehensive analysis of 843 climate companies which raised capital during 2017 – 2022 period, in the selected EMs between 2017 and 2022, focusing specifically on companies offering climate solutions. We examined company mortality trends across different stages of company development. By comparing these trends to the global benchmark, such as global data from a well-recognized investment database, we aimed to identify any potential discrepancies in the funding funnel specific to EM climate tech companies.
Quantification of Funding Gap: To assess the disparity in funding available to start-ups in the climate sector in EMs compared to developed markets, we analysed 1,697 funding deals data to estimate capital funding allocated to such companies within the selected EMs during the period 2017-2022. Additionally, we utilized data on climate investments in the US market during the same period as a benchmark representing developed markets. The US market serves as a reference point due to its established climate ecosystem. By comparing the total capital invested in the EM climate market to the estimated total investment required to reach US market funding levels, we were able to quantify the potential funding gap.
Landscape Analysis of VC and PE Funds: To gain a comprehensive understanding of the current funding environment for climate start-ups in the selected EMs, we conducted a comprehensive analysis of the VC and PE landscape. This analysis involved mapping the activities of over 80 VC and PE funds operating within these regions. Our focus was on examining the investment focus areas to identify potential gaps in the market and areas requiring additional resources for robust growth in climate solutions.
The cost crossover enables clean peak replacement while reducing renewable energy curtailment. As electric vehicle adoption scales—potentially adding up to 30 GW of peak load—paired storage, smart charging, and dynamic tariffs will become critical to monetize grid flexibility.
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Background
Urgent Climate Action needed in Emerging Economies
Climate change poses an existential threat, demanding urgent action. EMs, with their growing populations and rapid development, are crucial players in the global fight against climate change. EMs face a unique set of challenges in addressing climate change.
Rapid Development & Population Growth: Rapid economic development and population growth in EM often lead to increased energy consumption and pollution, exacerbating climate change. By 2050, nations currently classified as EMs are projected to house 88% of the global population and their share of global GDP is expected to increase from 50% today to 62%[1]. Estimates suggest 88% of the growth in electricity demand between 2019 and 2040 is expected to come from EMs[2].
Vulnerability to Climate Impacts: Many EM countries are geographically vulnerable to climate change impacts like rising sea levels, extreme weather events (floods, droughts, heatwaves), and changing weather patterns, threatening food security, infrastructure, and livelihoods.
Competing Priorities: Addressing immediate development needs like poverty reduction and infrastructure development can overshadow long-term climate action plans.
Limited Resources for Adaptation: EM countries hold immense potential to develop and deploy innovative, low-carbon solutions but often lack the financial resources needed to adapt to and mitigate climate change effectively.
[1] BCG: The Sustainability Imperative in Emerging Markets
[2] CEEW: Reach for the Sun
Investment Landscape: Platform-Scale Opportunities
India's energy transformation creates investment opportunities spanning grid digitization, renewable manufacturing, storage systems, and new energy forms.
Grid and metering infrastructure offers immediate opportunities across advanced metering systems, grid analytics platforms, and loss reduction technologies. The ₹97,631 crore allocation for smart meter installations under the Revamped Distribution Sector Scheme represents just the beginning of a broader grid modernization program. Companies providing end-to-end metering solutions, from hardware manufacturing to data analytics and billing systems, are positioned to benefit from this infrastructure buildout.
Storage and flexibility services present high-growth opportunities as renewable penetration increases. Co-located battery systems, optimization software, and ancillary service platforms enable renewable developers to provide firm power while capturing value from grid services. The expanding electric vehicle ecosystem creates additional demand for charging infrastructure, smart grid integration, and vehicle-to-grid services.
Manufacturing opportunities span solar modules, inverters, transformers, and smart meters as India builds domestic supply chain capabilities. The government's production-linked incentive schemes support manufacturing across the clean energy value chain, reducing import dependence while creating high-value employment in emerging technology sectors.
Strategic Outlook: Leading the Global Energy Transition
India's energy transition has moved from targets to tangible scale, with record additions establishing renewables as the system's growth engine. The next imperative is building a resilient domestic supply chain—spanning modules, cells, inverters, transformers, storage systems, and digital controls—to lock in cost advantages and enhance reliability.
Localized manufacturing and digitally enabled hardware will accelerate grid-forming capabilities, reducing curtailment and peak thermal dependence while improving Discom financial health. This catalyzes broad economic gains: export-ready industrial clusters, skilled employment, and lower lifecycle energy costs.
By coupling scaled deployment with supply chain depth, India advances energy security, macroeconomic stability, and sustainability in tandem—offering a replicable model for emerging economies seeking growth-aligned decarbonization.