ESG-led investments in India have caught the attention of private equity and venture capital firms.
NEW DELHI (India CSR): India saw a total of $61.6 billion in investments in private equity in 2022, which was slightly lower than the $69.8 billion in 2021. According to the annual India Private Equity Report 2023 by Bain & Company, ESG has become a breakout theme in 2022 with investments in clean energy and electric vehicles (EVs) reaching $7.9 billion.
Investments in ESG
ESG-themed investments accounted for almost 13% of the total PE-VC investments in 2022 at nearly $7.9 billion. The majority of these investments were concentrated in clean energy and the electric mobility sector.
Clean Energy and EVs
ESG investment is largely concentrated in clean energy (solar, wind power, etc.) and electric mobility — these themes contributed to approximately 90% share of $19.2 billion invested in ESG across 2018-22.
Clean Energy saw vigorous deal activity in 2022 with investments of $5 billion, supported by increasing cost competitiveness of solar energy, regulatory tailwinds, and the acceleration of the climate agenda. The electric mobility segment has also attracted more than $4 billion in investments since 2018 and is expected to see increasing penetration in the coming years.
The year 2022 saw marquee deals such as Mubadala and Blackrock’s investment in Tata Power, KKR’s investments in Serentica Global and Hero Future Energies, and TPG Rise in Tata EV.
Key Highlights
ESG-led investments more than double to reach 13% of all PE-VC investments in India, with $7.9 billion invested in 2022.
2022 Indian PE-VC investments surpass $60 billion for the third consecutive year amid global headwinds.
Traditional Sectors
Despite the emergence of ESG-themed investments, traditional sectors such as BFSI, healthcare, energy, and manufacturing remained resilient and grew by 50% to around $28 billion in 2022. Robust consumer sentiment was the key driver.
Recalibration of PE-VC Investments
While India’s share of private equity and venture capital investments in Asia-Pacific grew from ~15% to ~20% from 2021 to 2022, the private investments ecosystem slowed in the second half of 2022 due to global sentiment turning conservative amidst geopolitical tensions and macroeconomic challenges.
Outlook for 2023
As funds adopt a cautious approach entering 2023, the mix of deals is expected to shift, with mid-sized and small-sized deals gaining a share in the overall deal value while megadeals over $1 billion will be harder to come by. Traditional sectors and ESG-themed investments will continue to ride on robust consumer sentiment, while some structured deals could see pace in consumer tech.
“ESG has gone beyond being a mere talking point to becoming a key driver of dealmaking, with the share of ESG-aligned investments reaching almost 13% of the total PE-VC investments in 2022 at nearly $7.9 billion, from around 5% in the previous few years. As we look to the future, it’s clear that the ESG agenda is shifting from mind-share to wallet-share, especially in key sectors of clean energy and mobility,” said Prabhav Kashyap, Bain & Company, Partner and co-author of the report.
Despite a short-term downturn, India continues to see interest from investors, especially from SWFs and LPs looking to deploy funds.
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