India's Climate Tech Startups Faces Funding Bottleneck, Says Report

A new report by IIMA Ventures and MUFG Bank highlights the critical need for increased funding for India's burgeoning climate tech sector. Despite the presence of over 800 active startups, many are struggling to secure the necessary capital, particularly at the growth stage, to scale their solutions and make a significant impact.

The report, titled "Innovation for Impact: Indian startups driving climate action," revealed that only 2.5% of climate tech startups have raised Series A+ rounds, primarily focused on electric mobility. Moreover, while early-stage funding remains healthy, with two-thirds of startups securing seed capital, less than 3% have raised Series B or beyond.

The report also emphasizes the sector's concentration on emission-reducing solutions, with relatively sparse focus on building resilience. While transport and mobility dominates the climate tech ecosystem, other sectors like industrial decarbonization, waste management, and alternative fuels remain underfunded despite their high potential for climate impact.

To address these challenges, the report identifies key areas poised for innovation and growth, including decarbonization technologies, waste-to-value solutions, and alternative fuels. It also calls for stronger financial and policy support to help startups scale their solutions and contribute to India's climate goals.

Chintan Antani, from IIMA Ventures, stated, "India's climate tech sector is a vital force in the global fight against climate change. We need to provide enhanced support to scale breakthrough solutions and create a sustainable future."

Takuya Senoo, Regional Executive of MUFG India, emphasized the importance of climate finance in achieving India's net zero aspirations. "We are committed to supporting climate tech startups through strategic investments and partnerships," he said.

The Climate Action Summit, where the report was launched, brought together investors, entrepreneurs, corporates, and sustainability professionals to discuss the challenges and opportunities in India's climate tech ecosystem. The event highlighted the need for more financial mechanisms to support climate innovation across sectors.

Key Challenges: Lack of Growth-Stage Capital

The most prominent issue raised in the report is the scarcity of growth-stage funding. While early-stage financing remains healthy, with two-thirds of funded startups securing seed capital, the transition to Series A and beyond proves to be a major hurdle.

Only 2.5% of startups have raised Series A+ rounds, with less than 3% successfully securing Series B or later-stage funding. This funding gap presents a serious bottleneck, as startups in this space need substantial capital to scale their operations and make meaningful environmental impact.

A concentration of growth-stage funding is observed in the electric mobility value chain, which dominates the ecosystem and accounts for nearly 85% of climate tech funding. This focus on electric mobility, while necessary, leaves other high-potential sectors—such as industrial decarbonization, waste management, and alternative fuels—largely underfunded.

These sectors offer substantial opportunities for mitigating emissions and building resilience, but without capital, their potential remains untapped.

Sectoral Focus: Emission Mitigation vs. Resilience

Another notable highlight from the report is the overwhelming focus on emission-reducing (mitigation) solutions, which account for over 80% of climate tech startups. This aligns with global efforts to curb emissions but reveals a gap in resilience-building solutions.

Given India's vulnerability to climate change, there is a growing need for innovations that help communities and industries adapt to changing environmental conditions. Solutions that enhance climate resilience—such as those focused on water management, disaster preparedness, and sustainable agriculture—are relatively sparse, despite their importance.

Emerging Opportunities: Diversification and Innovation

Despite the challenges, the report identifies several promising opportunities for growth and innovation within India's climate tech landscape. Decarbonization technologies, including carbon capture and storage, are projected to become a USD 10.3 billion market by 2032, presenting significant opportunities for startups.

Similarly, waste-to-value solutions and circular economy innovations are poised for expansion, supported by the USD 15 billion waste management industry. Alternative fuels, such as biofuels and hydrogen, represent another area with high potential, yet remain underfunded.

Furthermore, there is increasing demand for AI and IoT tools for climate tracking and reporting, offering startups the chance to leverage digital technologies to drive climate action. These tools could play a critical role in monitoring emissions, assessing risks, and enhancing sustainability reporting, particularly as corporations seek to meet their environmental, social, and governance (ESG) goals.

Corporate and Investor Engagement

The report also underscores the growing role of corporations and investors in supporting the climate tech sector. Corporate giants like Hinduja Group and Aditya Birla Group are increasingly involved in scaling climate tech solutions, while investment organizations such as Green Artha and Avaana Capital are helping to bridge the financing gap.

MUFG’s commitment to deploying JPY100 trillion (USD 700 billion) of sustainability-related financing by 2030 signals strong international interest in India’s climate tech ecosystem.

Conclusion: The Need for Policy and Financial Innovation

India's climate tech startups hold tremendous potential to drive global climate action. However, without stronger financial mechanisms and policy support, they risk stagnating at early stages. The report calls for innovative financial solutions to bridge the USD 1 trillion climate finance gap over the next decade, emphasizing the importance of growth-stage capital to scale impactful solutions.

Addressing the climate crisis requires not only technological innovation but also sustained investment and collective action. As India moves toward its net-zero aspirations, the combined efforts of startups, corporations, and investors—supported by favorable policies—will be key to unlocking the full potential of the country’s climate tech sector.

As India continues to face the urgent risks of climate change, the report serves as a call to action for investors, policymakers, and startups to work together to accelerate climate tech innovation and build a more sustainable future.