Q1: As an investor with a strong climate focus, could you share with our readers the journey of Neev Funds?

Neev Fund was conceptualized in 2015 as an intergovernmental initiative between India and the UK.. Neev Fund was focused on creating impact by developing infrastructure in the lesser economically developed states of India. We have since then made 10 investments from the fund and are in the process of making exits.

Having successfully delivered on a daunting mandate, we launched Neev Fund II or SVL-SME Fund, as a successor fund in June 2021. Neev Fund II has a strong focus on climate and sustainability. It is currently in the process of deploying capital and has till date committed capital to 6 companies operating in sectors like emission reductions, alternative chemistry battery technology, CBG, circular economy, green hydrogen, sustainable agriculture, water and sanitation.

In your view, how has the climate action investing landscape evolved?
It would be helpful for our readers to understand your learning and insights on building a climate-focussed investment portfolio

The Indian climate-tech landscape has evolved greatly from the erstwhile focus on renewable power generation to a wide based approach encompassing both climate mitigation and adaptation sectors including emission reductions, carbon capture, circular economy, alternative renewable energy projects, etc. Climate-action has started penetrating across various industries and sectors by developing niche products and solutions to address the looming issue of climate change.

At Neev, understanding the climate impact forms the basis for our portfolio company evaluation. Instead of observing the impact as an add-on benefit to the commercial evaluation, we screen opportunities from the lens of potential impact on climate thereby making climate impact as our north star. After identifying such businesses, we then delve into and chart an impact map, value creation plan to identify areas of improvement including any policy level interventions, to assess whether the opportunity is lucrative for our investors as well. Through this process, we are able to zero in on niche yet lucrative sub-sectors in the climate space and create a portfolio of high impact and value generative portfolio companies.

Q2: Could you share a few examples from your portfolio who stand out for their climate innovation and also present a pathway for scale and profitability?

We have supported a few innovative climate solutions that are scaling up and becoming profitable. Blue Planet, the circular economy platform is providing end to end waste management solutions which also got featured as the fastest growing waste management company in Asia Pacific by the Financial Times in 2022, GPS Renewables, which started as a biogas startup and has now evolved to a full stack bio-fuel technology company having constructed Asia’s largest bio CNG plant in Indore, Sun Source, which started as a rooftop solar EPC player for C&I clients and scaled up with over 3GW of projects designed and 400MW of owned projects to ultimately being acquired by a global energy major; our portfolio companies have focused on creating a moat through innovation and have scaled up significantly.

However, two companies that we are particularly excited about include Hygenco a green hydrogen generation company which has recently constructed and started supplying green hydrogen to JSL from India’s first operational green hydrogen manufacturing facility and are now venturing towards expanding its product portfolio to include supply of green ammonia; and Chakr Innovation, an emission control device manufacturer which has not only scaled up in terms of revenue from ~USD 1 mn per annum at the time of our investment to currently expecting to close this year at a monthly run rate of ~USD 3 mn but also in terms of products by developing an innovative alternative for the traditional lithium based battery in the form of aluminum air battery which is close to commercialisation and creating a decentralised energy platform. These companies are the leaders in their field, have scaled up significantly and have displayed that India has the potential to become a hub for leading innovative climate focused technologies.

Q3: Neev Fund has always emphasized the importance of measuring the number of jobs created in terms of gender and inclusion by your portfolio companies

As per an IMF report¹ green investment has the potential to create ~10-12 jobs per USD mn of investment. Neev Funds are proud to share that our investments have helped create over 150 jobs per USD mn of investment through both Neev Fund I and II combined, and this exceeds our design case of 50 jobs per USD mn of investments. While job creation is a metric for tracking the social impact created, at the same time we do place an equal importance on gender and inclusion at various levels including at the Board and the senior management level. We strongly believe that having a diversified and gender inclusive team is a big asset to a company by commanding a premium with a class of investors, can benefit from being able to tap into a larger talent pool and draw upon the unique experiences thereby promoting a culture leading to a more informed strategic decision making.

Given the emerging relevance of ‘green jobs’, how are you building an impact measurement and management framework that helps assess the social and livelihood impact of your portfolio companies?

As outlined above, we have built in key criteria for filtering and screening potential opportunities. This exercise upfront, helps us understand the impact creation potential of each company and derive the key metrics which can be unique to each industry. While finalising our investment, we also try to independently develop an impact map for the company, and encourage the company to monitor and report the impacts. The above exercise helps us form the broad framework for identification and measurement of impact for each of our portfolio companies. Specifically for measuring jobs we have adopted the methodology of assigning full time equivalence value to short-term jobs, this helps in standardising the metric because the employment characteristics vary across sectors.

Q4: How are you assessing financing of climate-adaptive technologies? Given that this segment has received lesser investments compared to climate mitigation, how do you assess it in terms of investment potential?

As per an OECD report² pro-active climate adaptation is critical for building resilience against the impacts of climate change and can reduce the overall cost of climate change by a factor of 15! This in itself highlights the need for and importance of investing in climate-adaptive technologies. Globally the adaptation segment has had limited access to capital and investments as compared to the mitigation segment due to multitude of reasons ranging from the immediate and assured business models for the climate mitigation technologies, perception of adaptive technologies having a long gestation period, historical focus of climate policies towards mitigation technologies, etc.

However, we at Neev actively pursue climate adaptive technologies and have invested in several such companies including Nutrifresh, a sustainable agriculture company based on hydroponics which evaluates the needs of the respective produce and through precision farming, caters to such needs to ensure a healthy produce. Further, it reduces the land and water requirement, as compared to traditional farming, by nearly three times and can also help make barren lands productive again. We are hopeful that through our investments in such companies, we are able to shatter the myths and perceptions surrounding the viability of climate adaptation technologies which helps it to attract increased investments going forward.

Q5: Given your experience of investing across multiple sectors, are there any specific investment risks that are associated with climate investments which are different from other segments? What are these risks and how could they be mitigated?

Equity investments carry with them a set of risks which are common to climate investments as well. However there are a few specific risks of investing in the climate action sector which are different and need to be assessed and managed accordingly for all climate-tech investments. These include:

• Policy regime– While regulatory risk is associated with all investments, climate action being at a nascent stage carries a higher degree of such risk. These new age niche sectors are often path-breaking and category creating thereby not having any predetermined or comparable regulations, which leads to a low level of stakeholder confidence for the sector. This risk can be mitigated by actively engaging with the regulatory authorities to build and establish relevant standards and regulations which can provide comfort and build confidence in the sector.
• Technological risks – As with regulatory risks, technology risk too are common for all sectors. However, the entire hypothesis of a value accretive climate-tech company relies on innovation and new technology. In case of technological advancement it can make a company obsolete and severely limit its value creation potential. This can be mitigated only through constant innovation to diversify the solutions being offered and identifying & venturing into newer untapped niches.
• Concentration risks – With the climate-tech sector at a nascent stage, it often leads to a limited number of companies often concentrated in specific technologies or geographies. An investor should be wary of this risk while building a portfolio of climate investments to ensure sufficient diversification which helps reduce risk for its investors.

Thus while investing in climate-tech does carry its own set of specific risks, we believe an investor / company can work actively to mitigate them and create value for all the involved stakeholders.

Q6: Given that the climate sector has been seeing innovations across multiple segments - electric mobility to climate-smart agriculture and waste management, how are you building your investment thesis in the coming years?

Will there be a focus on any specific segments?

We are currently operating in an exciting time and have been fortunate to witness multiple innovations across multiple segments and with the increasing awareness on the need for climate action, we believe that such innovations and niches will continue to be available for the foreseeable future. As our name “Neev” suggests, we believe in creating a strong “Neev” or foundation for not only our portfolio company but for the industry at large.

We try to inculcate this philosophy while building our investment thesis as well and try to stay away from heavily invested / mature sectors, instead opting for the niche sub sectors where we can be among the market leaders and create outsized impact. A few sub-segments within the climate sector which seem promising to us include clean mobility, pollution control, blue economy, energy efficiency, smart agriculture, alternative / green materials, water and circular economy. We continue to engage with companies operating in niche sub-segments who are committed to the cause of climate action and hope to create a better world for our future generations.

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1. https://www.imf.org/en/Blogs/Articles/2021/08/11/putting-public-investment-to-work
2. https://www.oecd-ilibrary.org/sites/09e304e3-en/index.html?itemId=/content/component/09e304e3-en

Background of Neev Funds

Neev Funds is an impact focused investor with an AUM of ~USD 200 million.

It focusses on creating environmental and social impact by identifying and supporting companies operating in niche sub-sectors. Backed by the SBI Group, it counts various sovereign and global DFIs like Government of UK, JICA, EIB and other domestic investors as its Limited Partners.