New pools of capital emerge for India's net-zero push as investors widen climate bets

Mumbai: New pools of long-term capital are emerging for India's energy transition, with investors broadening their focus beyond renewable power generation to include transmission, energy storage, and climate infrastructure.

Speaking at Mint's India Investment Summit during a discussion on the new economics of net zero, Ajay Chaudhary, chief executive officer of NIIF Infrastructure Finance Ltd (NIIF IFL), said, “The real game changer will be the entry of long-duration capital from sovereign wealth funds and pension funds into sustainable infrastructure.”

India's transition towards its 2070 net-zero target is expected to require significant investments across renewable energy, transmission networks, storage, electric mobility and other low-carbon infrastructure. As these sectors mature, investors said the financing landscape is also becoming more sophisticated.

"Construction-stage assets attract one category of investors. Once projects become operational and cash flows become predictable, another pool of capital is ready to take over those assets," Chaudhary said, adding that investors are increasingly specialising according to the level of risk they are willing to assume.

He said the market is already witnessing the emergence of dedicated investment vehicles targeting climate infrastructure. "We are seeing investors create dedicated platforms with long investment horizons. Large private equity firms have already started transmission platforms with over a billion dollars of equity committed," he said.

Development finance institutions are also increasingly positioning themselves as catalysts to attract private capital into newer segments of the climate economy. "Our role is to invest where commercial capital is not yet willing to go. We look for opportunities where our capital can catalyse much larger pools of private investment," said Shilpa Kumar, managing director and head of India at British International Investment (BII).

As sectors mature and project risks reduce, a broader range of institutional investors is expected to participate, she said. "As sectors mature and projects become de-risked, you open them up to a much larger pool of capital," Kumar said. She added that BII also actively seeks to bring in like-minded institutional investors alongside its own investments.

"One of the things we focus on is whether other investors with similar ESG standards and a willingness to finance these sectors can join us on that journey," Kumar said. BII had recently invested nearly $300 million alongside Copenhagen Infrastructure Partners in one platform, while another investment later attracted a global fund focused on Africa and Asia after project risks had reduced.

Environmental, social and governance (ESG) standards are expanding the investor universe. "Strong ESG performance improves the long-term sustainability of businesses and enables them to attract follow-on capital," Kumar said.

This comes even as lenders maintain that financing availability in India remains robust. "Nearly 96% of the debt flowing into India is domestic capital. Foreign debt accounts for only about 4%. The bulk of the money flowing into India is Indian money," said Ashok Kumar Sharma, deputy managing director, chief credit officer and chief sustainability officer at State Bank of India.

Sharma added that liquidity has remained ample in the banking system. "Money is not the issue. Banks have consistently been sitting on surplus liquidity of around ₹4 lakh crore for many years," he said.

The panelists said the next phase of India's climate financing story will be shaped less by the availability of capital and more by the ability to create bankable, de-risked projects capable of attracting increasingly diverse pools of long-term investors.