Bridging the Funding Gap for Climate - Focused Companies in Emerging Markets
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A great investment outcome blends deep conviction with disciplined execution across the full deal lifecycle - from sector selection to exit. While luck can tilt outcomes at the margin, repeatable success is built on four pillars: research depth, founder selection, operational value creation, and valuation discipline.
Recent studies highlight that revenue growth and business improvement now account for nearly half of private equity value creation. In this environment, sectoral tailwinds, leadership quality, and hands-on value creation have become central to driving returns.
Presented below are the key takeaways from our analysis:
Gap at Growth Stage: Based on interviews with climate entrepreneurs, investors, fund managers and policymakers, we estimate a significant challenge for climate start-ups at the growth stage in EMs to achieve scale and thereby have impact. Several of the Seed and Series A companies (110+) we interviewed mention that while they were able to get initial capital at the early and seed stage, their growth has been stifled by the lack of growth stage capital. In our interviews with large scale investors (commercial private sector investors such as Brookfield, TPG Rise, KKR, Blackrock) there is a lack of scaled companies (providing an investment opportunity of $100 million) in the climate tech sectors. Based on a deep dive study in India, there are around 30 early stage funds with a capital available of about $500 million and only 3 funds, including Prosperete, with a funding requirement of more than $6.5 billion.
Poor Survival Rate of companies in the climate space: Our research highlights the difficulty, with only 9% of EMs’ companies in the climate space successfully transitioning to Series B after seed funding, compared to the global average of 27% for similar companies.This stark difference underscores the critical funding gap hindering the efforts of promising climate start-ups to expand and scale operations, often leading to premature closure. This also implies that scarce early-stage capital being invested in climate sectors in EMs will face challenges in producing expected returns as they are challenged by the lack of growth capital.
Additional $5.2 billion growth capital was needed: During 2017 – 2022, only $2.4 billion was invested in the climate sector, falling short of the $7.6 billion required. This created a significant capital gap at the growth stage, further hindering much needed climate action. An additional $5.2 billion of growth capital would be needed for EM companies to match the trajectories of their counterparts in developed markets.
Opportunity for New Funds: Our analysis reveals a clear whitespace in equity funding for growth-stage companies in EMs in the climate sector. This further reinforces the pressing need for additional growth capital, presenting an opportunity for new funds specialized in climate solutions.
The urgency is clear. With rapid economic growth projected in emerging markets, the funding gap for climate solutions is expected to widen significantly in the coming years. Coupled with the devastating effects of climate change already felt in these regions, the need for dedicated growth capital funds specifically designed for emerging market climate start-ups is undeniable.
Drawing insights from discussions with stakeholders in the climate ecosystem, we pinpoint key challenges and propose a fund specifically tailored to address them. The proposed solution: establishing multiple new growth funds tailored to empower these innovative companies. This will not only unlock their potential but also trigger a virtuous cycle:
Empower Innovation: Growth capital will enable climate solutions to scale, accelerating the development of innovative technologies and approaches to combat climate change.
Thriving Ecosystem: By supporting these ventures, we can cultivate a vibrant climate ecosystem in emerging markets, attracting further investment, talent, and collaboration.
Attractive Returns: Successful exits from these companies will generate attractive returns for investors, further fuelling the growth capital pool and driving future investments in climate solutions.
Accelerated Climate Action: This cycle leads to a significant increase in climate solutions, contributing to global goals.
Establishing these dedicated funds paves the way for a more sustainable future.
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.
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
The Sustainability Business Imperative
These structural realities converge to create one of the most compelling sustainability-driven investment theses globally. The financial markets are responding decisively:
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Outbound investments rose 67% to USD 41.6 billion in FY25, heavily ESG-driven.
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Low-carbon technologies could represent an USD 80 billion market by 2030.
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India’s solar module manufacturing capacity nearly doubled from 38 GW in March 2024 to 74 GW in March 2025, while PV cell capacity expanded from 9 GW to 25 GW.
The opportunity is clear: renewable energy, electric mobility, green hydrogen, and climate technology are no longer niche—they are the future of India’s growth model.
Digital Advantage: Multiplying Impact
India’s digital economy strengthens this transformation. It contributed 11.7% of GDP in 2022-23, employs 14.7 million workers, and grows twice as fast as the broader economy, with productivity five times higher than traditional sectors.
Smart grid technologies enable more efficient energy distribution and renewable
integration. Digital platforms facilitate more efficient resource allocation across the economy, from logistics optimization to demand-responsive energy management.
The convergence extends to traditional sectors. Digital technologies enable precision agriculture that improves crop yields while reducing resource consumption. Smart city systems optimize energy and water usage while improving citizen services. Financial technology platforms facilitate access to green financing and sustainable investment products for a broader population base.
Economic Transformation Through Sustainability
The data demonstrates that sustainability-linked businesses represent India's path toward faster, more efficient, and more resilient economic growth. Renewable energy provides energy security at lower costs than other alternatives. Sustainable infrastructure construction delivers higher long-term value and operational efficiency. Climate-resilient agricultural practices protect food security and farmer incomes. Digital technologies enable resource optimization across all economic sectors.
This transformation directly benefits India's 1.4 billion citizens through multiple channels. Energy independence reduces inflation pressures and currency volatility while creating domestic employment in high-technology sectors. Efficient infrastructure reduces transportation and logistics costs while improving quality of life in urban and rural areas. Climate resilience protects agricultural livelihoods and food security. Digital access enables broader participation in the modern economy while providing access to education, healthcare, and financial services.
The economic logic is compelling: sustainability-linked businesses address India's most pressing structural challenges while capitalizing on its greatest competitive advantages—demographic dividend, technological capability, and policy commitment. Rather than constraining growth, sustainability provides the framework for achieving India's economic potential while ensuring that prosperity benefits all citizens across a resilient, self-reliant economy positioned for long-term global leadership.
The foundation is established, the economic incentives are aligned, and the transformation is already underway. India's future economic success will be measured not just by growth rates, but by its ability to deliver prosperity, security, and resilience for the world's largest population through development pathways that other nations will seek to emulate.