Looking East: despite complexity and risks, India’s net zero investment opportunities explode

India’s net-zero ambition is supersized. The UK, where emissions peaked in 1973, is aiming for net zero in 2050. This means it will decarbonise over about 75 years. 

However, emissions are unlikely to peak in India until about 2040. Targeting net zero in 2070, the country – which has a population 20-times larger than the UK and is still developing – plans to fully decarbonise in just three decades.

With a population of 1.4 billion people, a fast-developing economy and an ambitious net-zero target, India arguably faces one of the planet's biggest challenges to move away from fossil fuels.

Despite the huge complexity of the market, investors in decarbonisation are showed with a stream of opportunities, according to a panel discussion on the podcast Sustainability with Substance.

The massive transformation required to get India to net zero is creating a structural-growth tailwind for select sectors and companies – offering investors in decarbonisation a multi-decade opportunity.

Companies with potential to benefit from India’s net-zero transition include Power Grid Corporation of India, which manages the national electricity transmission network and will play a central role in transforming India’s energy system.

Arita Sehgal, sustainable equities analyst at Ninety One, said during the podcast that she believes that, as well as being exposed to structural growth linked to decarbonisation, Power Grid has competitive advantages because of its scale, experience and access to low-cost capital.

However, the investment opportunities extend far beyond energy, Sehgal pointed out.

For example, India is one of the world’s biggest markets for two-wheeled vehicles. Because of regulations, subsidies and technical developments, electric two-wheelers are now 20-40% cheaper than their petrol equivalents in India.

For manufacturers of battery-powered scooters and motorcycles, as well as companies in their supply chains, an enormous market has emerged in just a few years.

“Similar dynamics are appearing in other sectors. We are seeing a lot of action on the ground in terms of decarbonisation," Sehgal noted. "What investors need now is for companies get to a scale such that their net zero economics become attractive.”

Huge capital flows

The structural growth generated by decarbonisation will be powered by vast capital flows. To achieve net zero, India needs an estimated $10 trillion of investment between 2020 and 2070.

However, with conventional funding sources unable to provide the total required, an investment gap of $3.5 trillion needs to be filled – including from overseas private investors.

To help bring in the private investment required for India to reach net zero, Sehgal stated: “Indian companies must up their game on sustainability disclosures. And they need to maintain a relentless focus on governance, which is extremely important to attract capital," Seghal noted.

Attracting foreign capital

Also taking part in the discussion, Nick Robins, professor in practice for sustainable finance at the London School of Economics’ Grantham Research Institute on Climate Change and the Environment, remarked that “2023 is a pivotal year for sustainable finance with India hosting the G20 for the first time and the government signalling its commitment with a range of signature initiatives such as the country’s first green sovereign bond."

Robins stressed that "To meet its climate and development targets, the country needs to attract considerable foreign investment from the public and private sectors, and bold thinking is needed to mobilise the trillions for assets that deliver a just transition for India’s growing population.”

Identifying potential, navigating risks

In aiming for net zero, India starts with some significant advantages, including low per-capita emissions relative to other G20 nations, as well as substantial potential for renewables. But with 18% of the world’s population on just 2% of its land surface – combined with water scarcity and a large agricultural sector – it also faces significant risks from climate change.

India must also balance its net-zero ambitions with its development goals. Directly and indirectly, millions of Indians derive livelihoods from the coal sector, so the transition away from coal-generation must be managed carefully.

In addition, decarbonisation has widely varying regional implications. The impacts on mining states like Bihar and Jharkhand will be very different to those on industrial-manufacturing centres in Gujarat and Maharashtra, which also have some of the best opportunities for renewable-energy generation.

Encouragingly, said Robins, there are signs the Indian government is beginning to address the concept of a ‘just transition’.

India’s challenges notwithstanding, there is excellent potential for investors to both support and generate returns from the country’s journey towards net zero. Sehgal concluded that “Indian corporates have demonstrated resilience over time. There is a Hindi term ‘Jugaad’, which loosely translates as a relentless drive to seek solutions in the face of adversity."

"Marry that ethos with the long duration of the growth driven by rising incomes and decarbonisation, and I believe it makes the case for a very attractive investment opportunity.”

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