Mr. Anurag Agrawal and Mr. Sanchayan Chakraborty, from Aavishkaar Capital, delve into Aavishkaar's investment philosophy spanning climate-tech solutions and the way these solutions can help build a strong case for supporting climate mitigation and adaptation.
Q1: Aavishkaar Capital has been at the forefront of supporting climate focussed investments in India, right from waste management solutions to innovations in agriculture.
Could you share with us, what has been your investment thesis when it comes to building a climate focussed portfolio?
Investments by Aavishkaar Capital have largely been driven by technology innovations solving for climate adaptation across agriculture and industry. Aavishkaar looked at climate as a horizontal theme which can impact livelihoods of, and risks to, the low income population, at scale. Some of the early investments in Aavishkaar included investments in the energy access and efficiency space in Vortex, which makes solar powered ATMs for rural India, and in Servals, which makes energy efficient cook stove burners. Our attempt to solve for waste management was via two investments: Saraplast and Let’s Recycle. Saraplast runs a portable toilet service for construction sites and urban areas. Let’s Recycle is one of India’s largest dry waste recycling start-ups. Further, we invested in Soulful to direct our investment towards climate adaptation in agriculture by promoting millets, which are climate and livelihood friendly grains traditionally grown in India.
Finding solutions to climate change has become a more urgent issue and Aavishkaar is currently evaluating a host of technology and services solutions which directly and indirectly impact climate change and its impact on low income communities, including in energy transition, electric mobility, environmental intelligence, circular economy, carbon markets and nature based systems.
Q2: Aavishkaar recently invested in NewTrace which is coming up with a technology lowering the cost of green hydrogen.
Given the increasing policy focus towards clean energy generation, how are you looking at this space?
What are the kind of business models that you see being potential investment areas?
The world emits around 50 bn tonnes of GHGs each year [measured in carbon dioxide equivalents (CO2eq)]. ~50% of these emissions come from energy generation (commercial and residential use), energy use in industry and direct industrial use (iron and steel, cement, chemicals, petrochemical, paper and other industries). These emission producing industries need to make concentrated efforts towards decarbonization, providing a huge opportunity for emission reductions through energy transition technologies. While this transition is underway, Hydrogen (H2) is fast emerging as a key protagonist in the story of energy transition and decarbonization of hard to abate industries. Hydrogen, a versatile, clean, and safe energy carrier, can be used as fuel for power or in industry as energy feedstock. H2 is also a zero carbon energy carrier as it produces zero harmful GHG emissions at point of use.
The use cases for Hydrogen exist across industries, with significant potential for application in industries like petroleum refining, fertilizer production, glass purification, fuel cell technology, energy storage, steel manufacturing and a few more. It is estimated that hydrogen demand in India could grow more than fourfold by 2050, representing almost 10% of global hydrogen demand. While investments are required across the hydrogen value chain, we believe solving for sustainable and cost effective production of the molecule itself will be key in leading the transition.
Q3: Climate smart agriculture has received support from Aavishkaar with enterprises like AgroStar, Mooofarm, INI farms receiving investments.
In your opinion, what are the investment opportunities within the climate smart agriculture segment that you believe should receive investor attention in the near term?
Agricultural systems are one of the largest emitters of GHG and on the other hand are also key to GHG removals, besides being a critical livelihood source for smallholders in emerging markets. Climate smart agriculture is key to building resilient food systems to solve for food security, enhance productivity of the farming community and support climate change mitigation efforts. Production yield is struggling as agriculture is stretched thin, ocean health has worsened, and natural resources are dwindling. What we find exciting from that perspective are tech solutions that help solve for food systems, in that, solving for land use management, regenerative agriculture, alternative fertilizers, productivity linked inputs, irrigation efficiency, agronomic data analysis, and carbon farming. Further, agricultural and climate data capture that will help build climate intelligence models with application to the BFSI industry is also an interesting space that requires investor attention.
Q4: Aavishkaar Capital has emphasised on supporting innovations that help build resilience of vulnerable communities to climate change.
In this context, could you highlight the broader types of climate tech solutions that you believe will greatly catalyse on ground impact for communities?
Innovations that will create impact in terms of improved living conditions, enhanced resilience to climate-related disasters, increased access to clean resources like water and energy, economic opportunities, and overall better quality of life for vulnerable populations will be important. Climate tech solutions that can have a significant on-ground impact for vulnerable communities include renewable energy, energy efficiency, clean water solutions, climate-resilient infrastructure, agricultural technologies, waste management, climate information, carbon capture, resilient housing, sustainable transportation, ecosystem restoration, and community education and engagement. These technologies address various aspects of climate change adaptation and mitigation to enhance community resilience.
Q5: Aavishkaar’s ESG First Fund launched with KfW demonstrates the potential for development finance to combine forces with commercial capital to scale impact.
What are some of the focus areas of this Fund? What are some of the other opportunities that you believe could be tapped by collaborating with development finance institutions?
The ESG First Fund’s investment strategy is defined by the increased demand for sustainably produced goods and services in global markets. The fund will invest in SMEs operating in Sustainable Agriculture, Responsible Consumption and other global supply chain enabling industries such as logistics, packaging, energy & resource efficiency, etc. The fund is focussed on India, emerging Asia and Sub-Saharan African economies. The development financial institutions are keen to support investments in climate, private credit and with a gender lens focus, among other sectors.
Q6: As the relevance of financing climate adaptation gains momentum, what are some of the focus areas for the Carbon Fund?
What is the kind of innovation that the Fund will support that you believe can move the needle for climate adaptation impact?
The world at large is focussed mostly on carbon mitigation (capping the amount of GHG in the atmosphere), which of course is key to achieving net zero. The maximum negative impact of climate change however will be felt by the communities who are dependent on, and live at the thresholds of, nature – the smallholders and indigenous communities; these communities are also the custodians of the natural ecosystem which is critical to the world getting to net zero, given the potential of nature in removing carbon from the atmosphere. It is important to enhance the resilience of these communities to climate change, involving them in the fight against climate change and compensating them for the ecosystem services they provide.
Our Carbon First Fund seeks to do that by investing in nature based and community focussed enterprises, which build natural assets, augment livelihoods and protect biodiversity. Examples of such investments include agro-forestry projects, mangrove and wetland protection/regeneration projects, regenerative agriculture, and technologies supporting nature and carbon markets. The Fund will monetise the investments primarily through the carbon markets, which price the cost of reducing/removing emissions, and which are projected to grow exponentially in the next couple of decades, providing fairly attractive financial returns on the investments.
Anurag is a Partner at Aavishkaar Capital, which is the Impact investing arm of Aavishkaar Group. Anurag has been part of the founding team of Group Company, Intellecap and last served as its CEO. In addition to serving on the Board of the Group Holding Company, Anurag represents the Promoter interest on the Board of Group Companies Arohan and Ashv as well as Aavishkaar Portfolio Companies Nepra, Newtrace and EPS.
Sanchayan Chakraborty, Partner, Aavishkaar Capital, manages Aavishkaar’s South and South-east Asia focused impact fund, and leads Aavishkaar’s climate investment initiatives, including a specific focus on carbon credits and nature-based solutions. Sanchayan has over two decades of experience in investment banking and fund management across Asia and the Middle East. Prior to joining Aavishkaar in 2013, Sanchayan was Managing Director for Leveraged and Acquisition Finance at Standard Chartered Bank (India). He has previously been part of Mergers & Acquisitions, Project Finance and Structured Finance franchises at Bank of America, ING Barings and ING Vysya Bank.
Background of Aavishkaar Capital
Aavishkaar Capital pioneered the venture capital approach of investing in early-growth stage enterprises in India in 2001, with a focus on geographies and sectors that were often overlooked and challenging. Along with its core objective of delivering commercial returns to its investors, Aavishkaar Capital creates livelihoods, reduces vulnerabilities, and provides access to essential products and services to the target population through its investments in ambitious and innovative entrepreneurs. Over the years, Aavishkaar Capital‘s investment strategy has evolved to include other emergent geographies, in addition to India - Emerging Asia and Sub-Saharan Africa and has scaled - larger investment tickets, while maintaining a focus on investing in businesses across 3 core sectors - Financial Inclusion, Food & Agriculture, and Essential Services.
