Investments aim to facilitate the adoption of climate-positive technologies by smaller Indian companies, mitigating carbon emissions in one of the world’s largest and most rapidly developing economies.
The Global Climate Partnership Fund, managed by Swiss-based impact asset manager responsAbility, has signed loan agreements totalling $80m (€73m) with four Indian non-banking financial institutions (FIs) to further climate-positive investments in the country’s fast-growing micro, small and medium-sized enterprise (MSME) sector.
The asset manager said such targeted support for Indian MSMEs could potentially make a significant contribution to combating global warming, given it offered a route to substantial reductions in carbon emissions by growing companies in one of the world’s largest and fastest growing economies. By doing this, the funding would also support job creation, especially in fragile rural communities, according to the fund manager.
The GCPF is a public-private partnership whose backers include several European state development finance institutions and ministries, the European Investment Bank and the International Finance Corporation.
Vani Mehta, responsAbility’s investment officer, climate finance, who led the four transactions, said the fund adopted a “customised approach” to its investments given the diverse nature of the Indian market. The fund manager aligns “technical expertise with each FI’s unique market focus and nurtures a sustainable climate transition on a significant scale”, she said.
The transactions include a $20m facility for Kinara Capital, which is focused on adoption of climate-positive technologies by MSME retailers and distributors of renewable energy and energy efficiency equipment, and a $25m facility signed with Annapurna Finance, focused on adoption of renewable energy and energy-efficient solutions among small-scale entrepreneurs and households.
The other two deals are a $20m facility for Clix Capital aimed at climate-positive investment across various sectors, but with a focus on radiology equipment for peri-urban clinics and solar rooftop for schools, and a $15m facility for Electronica Finance, an existing partner of the fund, to enable it to scale up its financing of climate-positive technologies across various manufacturing-related sectors focusing on MSME customers.
responsAbility said launching climate-focused initiatives created challenges for traditional lenders in the MSME sector, given the high level of support required, but that the GCPF was able offer bespoke assistance to its partner financial institutions through in-house and external advisory and support teams.
As an example of such support, the asset manager cited an interactive workshop held in Mumbai earlier this year, covering how to improve management of environmental and social risks in line with international best practice. The workshop, which included 28 participants from 16 partner institutions, was sponsored by the fund’s technical assistance facility.
Improving investment conditions
In addition to India’s vital role in carbon emissions mitigation, the country’s political and macroeconomic stability and improved business environment mean it is also an increasingly attractive destination for impact investors in terms of financial returns.
“Investments in Indian companies and financial institutions offer compelling risk-adjusted-return opportunities for long-term investors that seek impact,” David Diaz Formidoni, head of financial institutions investments for climate finance at responsAbility Investments, told Impact Investor.
Diaz Formidoni said India’s more stable operating environment was especially important for investments in renewable energy and energy efficiency, which tended to have longer payback periods.
“With the support of our flagship climate fund, our partner financial institutions can offer longer repayment tenors to their clients, overcoming a key barrier to investment in these technologies,” he said.
The country’s large size and high level of economic activity also meant that there was no shortage of new companies and institutions to provide investment opportunities. But Diaz Formidoni said that, while a vibrant market offered opportunities, it also presented risks which they were able to mitigate thanks to their India-based team whose local knowledge and experience ensured that the fund was working with the best partners.
