Shell Foundation (SF) is a UK-registered charity that exists to improve the lives of underserved communities in emerging markets while driving a just and inclusive energy transition.

SF co-creates and funds early-stage commercial ventures, blended finance funds and vehicles, as well as market enablers and institutions – all within a few ClimateTech sectors centred around the UN Sustainable Development Goal 7 (SDG 7): Universal Access to Clean and Affordable Energy.

To build sustainable and impactful markets, we support pioneering enterprises to test and prove solutions that can transform the way people live and work, providing:

• Patient, flexible and risk-tolerant grant funding to
  demonstrate impact, scale and viability
• High touch business support and strategic guidance
• Links to private and public sector partners and investors
• Market intelligence that informs other capital providers and
  helps enterpises build a track-record to attract that capital

To scale our interventions, we have multi-year co-funding programmes with the UK’s Foreign, Commonwealth and Development Office (FCDO) and USAID; and partnerships with US DFC and the institutional investor Nuveen (TIAA) to encourage further growth capital into the markets and technologies we support.

SF has been active in India for more than 20 years, supporting the co-creation and scale-up of impact enterprises and financing vehicles, which are delivering energy and socially impactful technologies through innovative business models.

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Within the climate spectrum, Shell Foundation supports sustainable enterprises and institutions specifically in thematic areas of Household Energy, Energy for Business, Off-Grid Utilities and Sustainable Mobility. Could you briefly share your impact philosophy for investing in these segments?

Our impact approach towards any of the above noted thematic areas is thesis-driven.

We landscape and identify existing market barriers, then map those which can be addressed via commercially viable solutions. We build pipeline through deep in-market presence and then select opportunities where our capital can be catalytic in scaling the solution and does not crowd out private/commercial capital if already available for specific solutions.

Our impact philosophy is driven by the premise that off-grid, ‘decentralised’ models are the least-cost method to bring clean and reliable energy to a significant portion of the off-grid population and drive impact across several dimensions – increasing incomes and social equity for those living on <$5/day while reducing or avoiding GHG emissions – thus driving a just and inclusive energy transition.

The evidence for this clear, as demonstrated through the lens of scaling specific small-scale decentralised clean energy solutions:

• Investing $10 million into solar conduction dryers in India would reduce CO2 emissions by 1.6 million tons per year.
• Investing approximately $750 million into solar cold storage in India would permit SMEs to deploy 50,000 cold storage units across the country, averting the emission of 1 million tons of CO2 per year.
• Replacing just one-quarter of the 8.8 million diesel irrigation pumps in India with solar pumps, which would require an investment of approximately $3.3 billion, would reduce CO2 emissions by 11.5 million tons per year.
• Diesel gensets produce 65x more CO2 than their cleaner energy alternatives.

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How do you think these segments were affected with the pandemic in your portfolio?

Our portfolio and the energy access sector at large faced Covid pandemic-induced financial liquidity issues, supply chain disruptions, and limited access to capital for expansion.

The areas expected to continue impacting household income in the coming times are reduced labour income from mobility restrictions and reductions in global remittances, delays to imports of staple goods inflating local prices, and disruptions to public services including school closures.

However, we’ve also seen post pandemic resiliency building in the sector, especially in Africa – via strengthening of the local supply chains. Faced with rising costs and long delays for deliveries from Asia shutdowns, several energy access companies developed new partnerships with local manufacturers. In one case, an East African company switched to adapting batteries from a Tanzanian motorcycle battery supplier as an alternative to solar battery imports from China.

SF had initiated multiple interventions in response to the pandemic:

• We were involved alongside several other fund managers in the sector and the GCF (Green Climate Fund) in creating the $80mn Energy Access Relief Fund (EARF), aimed at providing short-tenor subordinated, unsecured, low-cost subsidized loans to the enterprise to strengthen their post pandemic resiliency. By the end of 2021, the EARF Fund has approved funding to 38 companies across 14 countries. The EARF fund was the culmination of a ground-breaking partnership between 16 governments, foundations, and investors.
• Last September we co-funded and launched the India Covid Response Programme for Agriculture Transition – a $55 million credit guarantee programme supporting loans to farmer producer organizations, AgTech companies, and companies engaged in clean energy solutions for the agriculture sector. The programme is introducing and supporting clean technologies for smallholder farmers, particularly women, that improve market linkages and increase incomes while having a positive impact on the environment. What is also unique about the programme is the international and national partnerships that lie behind its establishment and ongoing management, the specific design features that address the exact needs of those it seeks to serve, and the speed in which it has been able to deploy effective and impactful funding. Loan amounts have been capped to ensure that early-stage enterprises, who previously did not have access to loans, get the maximum benefit from the fund.

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Could you briefly elaborate Shell Foundation’s investment strategy and portfolio in India? What kind of initiatives are you presently supporting in India and whether you have plans to expand your footprint going forward in 2023?

We are currently in the middle of designing the next stage of growth and development for the Foundation.

India remains a core strategic focus geography. The market size of the opportunity; the maturity of the enabling environment – including the specific policy frameworks addressing off-grid energy and carbon trading; and the legacy of developing scalable solutions that reach underserved customers, are all attractive to the international investors we work with looking for impact and financial returns.

We are committed to using our catalytic grant funding, our venture building business support and our international network of development and institutional finance partners to:

• Continue co-creating innovative finance solutions that are tailored to enterprises’ markets and stage of growth, such as the India Covid Response Programme for Agriculture Transition;
• Improve the ability of enterprises serving the most under-served customers – for example S4S Technologies, connecting farmers to markets and improving climate resilience; and Orb, serving SMEs with affordable solar energy generation – to meet the needs of investors and deliver the blend of impact and financial returns for different asset classes;
• Share market intelligence and impact data and drive the growth enabling environment such as friendly policy development to encourage replication and scale of the DRE sectors – such as our support to the Powering Livelihoods programme (covered below).
• Seek partnership with multiple asset owners – international and national, who understand the needs of entrepreneurs who will drive the transition, and the customers that they serve. We had recently launched a $100mn MOU partnership with Nuveen (TIAA), a leading global investment manager with over $1.3 trillion of assets under management, to drive growth equity investments into the DRE sector.

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IIC’s database reveals that the climate-tech sector emerged as the most vibrant sector in impact investing in India in the year 2021-22 with the highest number of deals (~80). What are your views on the landscape of climate-friendly innovations and startups in India? How does it compare with other emerging markets where you work in?

SF believes this is a resurging time for ClimateTech sectors across India and the emerging markets, however several challenges have been hindering its growth.

While global VC investing in ClimateTech clocked close to $40bn in 2021, Indian ClimateTech ventures have raised just $1bn in VC funding cumulatively across 2016 to 2021. SF’s understanding is that:

• The dearth of early-stage equity broadly across the emerging markets is one of the key reasons of lack of substantial activity to date. Capital is stuck in later stages, as the growth equity and debt financing players have already had allocations for climate deals for a while but have been lacking quality deal-flow.
• Further, the gestation period of ClimateTech ventures is longer (unlike the lucrative high-margin tech SAAS deals for VCs), and there aren’t many late-stage ClimateTech ventures which can show strong exit potential to the venture investors.

Further, in the context of impact investing with a focus on livelihood impact, except for perhaps AgriTech, ClimateTech sectors such as small-scale renewables are still nascent, and their path towards institutional capital needs significant maturing of several business models, and de-risking via blended finance. An increase of $18 billion in annual investments is needed by 2024 to scale up the small-scale renewables deployment in India, according to the CPI. Further, small-scale renewables for livelihoods (‘productive uses of energy’ leading to income increase) is a $50bn market opportunity in India, however most livelihood impact ventures and innovations are at early-stage requiring significant patient capital towards de-risking and scale up.

Recognizing this, SF had co-funded an enterprise and market/policy accelerator programme in India a couple of years ago (with cross-cutting gender inclusion component) called Powering Livelihoods, which has been de-risking commercial pilots for several early-stage DRE enterprises, while among other things parallelly also working with the MNRE and several governmental entities to support the creation and adoption of DRE-friendly and gender inclusive policies. These efforts have contributed to MNRE releasing a policy framework earlier this year for potential government-driven market and financial interventions (such as end-user financing) – to drive the scale up of several DRE-based inclusive livelihood solutions.

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Shell Foundation employs a robust impact monitoring and measurement methodology, and tracks impact on both climate mitigation and adaptation through metrics such as reduction in carbon footprint, leverage on finance, jobs supported and improvement in livelihoods. Overall, at an industry level, we have observed tracking and demonstration of climate impact for innovative climate-friendly technologies as quite a challenge also due to the nascent and complex nature of the sector.

We are curious to understand your experiences and learnings in implementing impact measurement along with your implementing partners. Could you also shed some light on your impact thesis and how you envision value generation across different segments/stakeholders in the market for climate technologies and innovations?

SF’s impact thesis is centered around four primary impact KPIs: Livelihoods improved, CO2 avoided/reduced, Jobs supported, and Additional finance leveraged. Our work to date has cumulatively impacted more than 229mn livelihoods and avoided or reduced more than 58m tCO2.

These master KPIs are broken down into sub-metrics across each of our thematics, and considered alongside commercial performance indicators at individual enterprise level.

A clear top-level impact dashboard with thematic break-down is available on the Impact page of our website. We are currently also further revamping and streamlining our M&E strategy and framework in line with the guidance from the UKICF

When it comes to ClimateTech sectors that we target – we’ve recognise the challenges around developing a commercially bankable pipeline of adaptation and resilience focused interventions, driven in part by the lack of evidence and standardised framework and metrics for capturing, measuring, and tracking impact as compared to mitigation interventions.

This is particularly relevant in the AgTech context, where 80% of the food and 40% of jobs in Sub-Saharan Africa and South Asia are tied to small-scale agriculture – yet just 0.2% of the roughly $600 billion in tracked annual climate-financing globally goes to small-scale agriculture value chains and the financing institutions serving the sector.

To address this, last year we supported the first phase of a multi-year research on unlocking adaptation finance within Agri value-chains in India and East Africa.

The graphic below covers the key adaptation/resilience impact areas of these value chains that was uncovered as a part of the research. The next phase of research will engage several climate investors and other climate stakeholders to further evolve these metrics commercially and strengthen the adaptation impact evidence base from a ClimateTech venture-investing deal flow perspective.

Notes. : Colors indicate the type of benefit category, as described in the text: Dark blue colors denote direct adapation (i.e., directly reducing exposure to climate risks); light blue colors denote direct enchancement of adaptive capacity (i.e., enhanced ability to withstand shocks when they occur); shades of green denote indirect enhancement of adaptive capacity (where imporovemnets occcur via a more complex causal chain); and purple denotes climate mitigation. Note that the figure and typology do not imply anything about the relative magnitude or ease of monetizing these benefits.

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The Foundation’s commitment to Gender-lens investing stands out explicitly whether it is supporting gender-inclusive businesses enhancing energy and transport access or climate solutions where impact on women is disproportionately higher. How do you integrate gender-lens in your present interventions? What is the business and impact case of incorporating gender-lens specifically in the climate sector according to you?

SF has developed and pursued an evolved gender-inclusive strategy that supports the growth of gender-inclusive ventures and SMEs that equitably enhance access to energy.

A ‘gender lens’ means ensuring that women’s needs, circumstances, and aspirations are incorporated in all decision-making. We apply a gender-lens in our analysis of market failures, potential solutions, and the impact on women. We support businesses that generate financial returns, while delivering positive impacts for women as well as their communities and the environment.

We incorporate gender-lens strategy across four areas:

• Inclusivity: We conduct gender analysis and have minimum criteria as part of our funding screening, due diligence and annual reporting process. The gender analysis looks at all business areas – including leadership, workplace equity, the business’ value chain, use of sex-disaggregated data, and how products and services may impact women
• Solving business/operational challenges: For select SF partners, we provide dedicated funding and technical assistance to incentivize testing innovative gender-inclusive strategies that aim to improve business performance. Through our interventions and research, we have deduced that applying a gender lens positively impacted several business areas in our portfolio, such as – 43% increased sales revenue; 42% increased client retention, and 87% improved client satisfaction.
• Gender-focused innovation: We also seek opportunities to unlock business innovation using gender as a first thought, not an after-thought. We identify market gaps where new business models centered around serving women are needed to ensure equitable access to energy and sustainable mobility solutions. In 2018 we co-created and ran a joint multi-year programme in India with the UK Government and DST India called the ‘POWERED’ (Promotion of Women in Energy Related Enterprises for Development) – which created 5000 jobs and supported more than 100 women-owned enterprises in rural and urban India.
• Market-wide advocacy: We support ecosystem initiatives and are a member of the 2X Collaborative. We also develop and share evidence, data, and practical resources to support investors and entrepreneurs on their gender inclusion journeys

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As the ecosystem takes a leap at more innovative areas involving deep-science based technologies such as alternative proteins, carbon capture, circular economy, green hydrogen fuels, smart batteries etc. - how do you see the market for these emerging climate innovations and startups evolve globally and in India? How can we augment more support for this sector?

Several of the deep-science ClimateTech sectors are gaining traction from the investors and climate champions alike. However, many of those would need the enabling ecosystem support to mature and grow and cannot just rely on VC-based funding or technological advancement to drive down the cost curve. For example:

• While Green Hydrogen target for 2030 in India is 3MT, it would require an enormous 30GW of renewable energy for production (20% of India’s total current renewable capacity). The recent intent conveyed by the Indian Government to further boost the development of the Green Hydrogen sector is encouraging.
• Similarly, looking at the emerging alternative protein sub-sector, although globally within Food & Use ClimateTech sector it attracts the highest ~40% of VC funding (and within India poised to grow to $1.6bn in size by 2026) – the Food Safety & Standards body in India has not yet formulated a standard or new regulation for the food category of alternative protein products – which doesn’t help an already fragmented sector and inhibit the pace of sector maturity.

From SF perspective, parts of Circular Economy (CE) and Smart battery sectors are most relevant when looking to further drive the growth of SDG 7 focused solutions. At a marco level, it’s been estimated that in India the adoption of CE approaches across the sectors could lead to more than $600bn in yearly benefits by 2050, and a 44% reduction in GHG emissions. We’ve backed solutions at the intersection of CE, AgriTech and BioFuels such as Sistema.Bio in India (active in 30+ countries), the market-leading bio-digester company for smallholders at the forefront of regenerative agriculture movement; and we believe that there’s significant commercial value and de-carbonisation potential to be unlocked at the farming practices and soil micro-biology level, than in the post-harvest value chains and technologies