Impact investor Aavishkaar Capital is increasingly looking to complement its long-cycle carbon bets with newer, faster-return climate opportunities—areas where capital can turn over quicker, risks are easier to price, and revenues don’t hinge on 20-year biological curves. The shift comes even as the impact investor continues to build out its permanent capital vehicle for carbon sequestration, incorporated in 2024 as Aavishkaar Carbon, the firm’s founder, Vineet Rai and Santosh Singh, managing director at Intellecap, the advisory arm of The Aavishkaar Group, told Mint in a joint interview.
Aavishkaar Carbon was set up to invest in growing trees on Indian farms to promote carbon sequestration and monetise it through the carbon trade market. Sequestration is the process of capturing and storing carbon, and a permanent vehicle has unlimited tenure.
The firm has received $150 million in soft commitments from global companies, including oil majors and technology firms, interested in purchasing carbon credits generated from these projects to offset their emissions. Carbon credits trade between $15 and $100 in global markets, with ‘high-integrity’ credits commanding a premium.
The strategy involves working with small landowners to increase tree cover and density, including planting native species such as sal and teak across 5,000–10,000 acres. Aavishkaar is running two pilot projects in West Bengal and Jharkhand.
Initially, small landowners are typically compensated through fixed payments, input support and intercropping income, with carbon revenue sharing kicking in later as sequestration increases.
The firm had earlier explored launching a $350–500 million closed-end fund for carbon sequestration in 2022, Mint had reported. While interest from investors, including development finance institutions, was strong, the firm moved away from the structure. Traditional funds typically have a 10-year tenure, which would force exits just as trees begin sequestering carbon at scale.
Shift in capital structure
In climate investing, opportunities broadly fall into three buckets. The first is decarbonisation, largely driven by corporate and industrial activity. The second is natural-resource-based bio-sequestration, such as forestry and land-use projects. The third is technology-led carbon removal, where engineered solutions are used to extract carbon from the atmosphere.
“The pricing difference is stark—a tree might earn you $10 a tonne, while technology-based carbon removal can command $1,000 a tonne, and buyers are willing to pay for that,” Rai said.
- Aavishkaar has moved from a traditional 10-year closed-end fund model to a permanent capital vehicle to better align with 20-year tree growth cycles.
- The firm is adding ‘fast-return’ bets like Biochar and AWD to balance long-term agroforestry.
- There is a massive pricing disparity in carbon removal; tech-led removal fetches up to $1,000/tonne vs. about $10/tonne for nature-based sequestration.
- Aavishkaar is exploring carbon-credit-linked bonds to attract private capital via familiar debt structures.
- The firm has secured $150 million in soft commitments from oil majors and tech firms for its carbon sequestration credits.
The challenge with bio-sequestration is duration. These are 20-year projects, while most investors want to exit in 10–15 years. At 15 years, the tree is only halfway through its carbon-sequestration cycle—precisely when returns start peaking. A traditional fund structure forces liquidation just when the asset is becoming valuable. “That’s why we decided to move away from a closed-end fund and set up a permanent capital vehicle, which allows us to hold the asset through its full biological and economic lifecycle,” Rai said.
At the same time, the climate ecosystem already attracts capital into several mainstream sectors. Electric mobility and electric vehicle (EV) financing are closely tied to climate change, but transportation itself is a mature and well-understood sector. That familiarity makes it easier for capital to flow when climate becomes an active theme, because investors already understand the technology, risks and unit economics, Singh explained.
Separately, the firm has worked with financial institutions in Kenya to assess carbon-related risks and collaborate with regulators to pilot carbon-credit-linked bonds, creating a pathway for private capital to enter carbon markets—a model it sees potential to replicate in India as well.
Shorter cycle bets
Such bonds raise capital for climate projects while linking investor returns to verified carbon credits. These credits can supplement bond repayments, influence coupon payments, or provide downside protection—allowing private investors to access carbon markets through a familiar bond structure rather than buying offsets directly.
For its permanent capital vehicle, Aavishkaar is currently not raising fresh capital from the market. Instead, the firm is rebalancing its climate strategy by pairing long-duration carbon bets with smaller, more digestible climate-tech investments that better match investor timelines.
While agroforestry remains part of the long-term thesis—often requiring 15–20 years to mature—the firm has expanded into shorter-cycle carbon interventions such as biochar and alternative wetting and drying (AWD) in agriculture. Biochar projects can generate outcomes over a much shorter horizon, while AWD interventions can show results within two to three years. The idea is to build a portfolio of carbon solutions with different time horizons, guided by clear impact principles, and test what can scale without locking all capital into multi-decade projects, explained Singh.
The shift mirrors the scale and urgency of India’s climate financing needs. The country will require about $1.5 trillion by 2030 across clean energy, transport, biofuels and climate-resilient infrastructure to meet its decarbonisation targets, according to a Deloitte report this year.
At the same time, climate-tech investment is picking up momentum. Indian climate-tech startups raised about $1.95 billion across 128 funding rounds between January and October 2025, a nearly 40% year-on-year increase, according to data from Tracxn.
Policy headwinds are also taking shape: a draft Climate Finance Taxonomy released this year, aims to steer capital toward credible climate activities and curb greenwashing, in line with India’s net-zero by 2070 goal.