ESG-led funding touches USD 7.9 bn in 2022: Report

Of the overall private equity and venture capital investments of USD 61.6 billion in India, as much as 13 per cent or USD 7.9 billion came through the ESG route in 2022, as per an industry analysis.

As the funding winter deepened from the first quarter of 2022 after the Russian invasion of Ukraine and the resultant risk aversion, the overall funding from PE/VCs into the country declined 12 per cent from the 2021 peak, when it had scaled USD 69.8 billion, according to a report by industry body Indian Venture and Alternate Capital Association (IVCA), prepared by Bain & Company. But the report noted that ESG (environment, social and governance) focused investment route emerged as a breakout theme in 2022, with investments in clean energy and electric vehicle companies accelerating to reach USD 7.9 billion, which was more than double from 2021 and 13 per cent of the yearly netting, accordingly to the report.

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ESG has gone beyond being a mere talking point to becoming a key driver of deal-making, with the share of ESG-aligned investments reaching almost 13 per cent of the total PE-VC investments in 2022 at USD 7.9 billion from around 5 per cent in the previous few years, the report said. Going forward, it is clear that the ESG agenda is shifting from mind-share to wallet-share, especially in key sectors of clean energy and mobility, the report added. ESG investment is largely concentrated in clean energy (solar and wind power) and electric mobility — which contributed to around 90 per cent of the USD 19.2 billion invested in ESG across 2018-22. Clean energy, especially solar, saw strong deal activity in 2022 with investments of USD 5 billion.

The year also saw marquee deals, such as the UAE fund Mubadala and Blackrock entering Tata Power, KKR in Serentica Global and Hero Future Energies and TPG Rise in Tata Motors’ EV arm Tata EV, the report added. The electric mobility segment is also growing and has attracted over USD 4 billion since 2018 and is gaining more traction. According to the report, there is significant movement in the domestic EV market, which saw more than 150 per cent growth in deal value to USD 2 billion in 2022. Electric two-wheelers are expected to see increasing penetration from 2-3 per cent in 2021 to 18-20 per cent by 2026 as they become more cost competitive.

India’s share of private equity and venture capital investments in Asia-Pacific grew from 15 per cent in 2021 to 20 per cent in 2022, as China plus one tailwind and India’s macro robustness made it a bright spot for investing amid decelerating capital flow into the region. Private equity has seen remarkable growth, especially in the past decade, from an investor base of 200 to over 800 now, as well as an expansion in exit opportunities.