Climate Funding: Public Sector Undertakings Step Up Where VCs Hesitate

There is nothing sexy about the business, which has to solve for plankton, barnacles, mussels and other such delights. It’s also not the sort of business that attracts much interest from venture capitalists (VCs), who generally prefer to focus on consumer-facing or software-as-a-service (SaaS) businesses. Despite this, Neiox Eco Cycle, founded by Akhil Raj Pottekkat, was able to obtain a tiny amount of funding in November 2024. The money didn’t come from a VC, but from Cochin Shipyard, which invested ₹30 lakh in the Kerala-based climate-tech startup. Last October, the shipbuilder followed that up with an additional ₹75 lakh investment under its maritime innovation programme. Neiox isn’t the only startup to receive backing from an unlikely investor. In November, Mahanagar Gas Ltd (MGL) invested ₹120 crore in Bengaluru-based electric vehicle (EV) startup 3ev, which builds electric cargo vehicles and battery infrastructure, for a 30.97% stake. That same month, Varaha, a climate-tech startup, received an infusion of $30.5 million from Mirova, the sustainable investing arm of French financial group Natixis. Other examples include Hindustan Petroleum Corp. Ltd (HPCL) backing early-stage climate technologies through its Udgam innovation platform, including a ₹35-crore investment in Maraal Aerospace, which builds long-range solar-powered drones, and Oil India Ltd backing carbon and materials innovation through investments in startups such as Caliche and Carbonation India in 2025. These investments may appear disparate and unrelated on the surface. But together, they epitomize a gradual shift in how climate innovation is being funded, driven less by rapid exits and more by patient capital. India’s climate-tech story is increasingly being written by these unlikely financiers—legacy institutions, public sector firms and global capital are stepping in where venture capital has feared to tread. To be sure, these are mostly very small investments. But, like a mustard seed, the investors hope, these infusions, made with an eye on the future, will germinate into something huge. Rather than near-term returns, they are hedging against regulatory risk, future demand shifts and operational disruptions. “The traditional VC model is built for high-risk, hyper-growth businesses, while most climate technologies require patient capital and long gestation periods. That mismatch is why legacy firms, public sector undertakings (PSUs) and global investors are stepping in—they’re investing to hedge transition risk and build relevance, not to chase fast exits," said Rajan Mehta, founder, Climate Ventures Partner. This quiet realignment is unfolding against a paradoxical backdrop. India has seen 642 climate-tech startups founded in the last three years, and 492 have raised funding over that period. Yet only 61 have reached Series B or later, while 678 have shut shop since January 2023, according to data from Tracxn. What lies beneath In shipping, what keeps a vessel afloat and profitable is often what lies unseen beneath the waterline. The hull—the lower portion of a vessel, which remains submerged—is its most critical and vulnerable component. Constant exposure to seawater and microscopic marine organisms make it prone to corrosion. Unlike engines or other mechanical systems that are routinely overhauled, hull quality largely determines a ship’s long-term value. Vessels are typically taken out of service every five years for dry docking, where hulls are inspected, repaired and repainted. Current systems require the application of multiple layers—often as many as seven—with separate coatings used to prevent corrosion and to reduce biofouling (accumulation of biowaste such as barnacles on the hull). The accumulation of marine organisms on a ship’s hull increases drag, forcing vessels to burn more fuel to maintain speed, increasing emissions—most vessels still run on highly polluting fuels derived from crude oil. Existing anti-fouling paints by and large rely on biocides that kill marine organisms—an approach increasingly being frowned on by European environmental rules. For shipbuilders and repair yards, coatings are thus an unglamorous but decisive variable, shaping operating economics and emissions over decades. For ship owners, every day that a vessel sits in dock translates into idle time and lost revenue. Globally, marine hull coatings are dominated by a small club of companies such as Jotun, Hempel and Nippon Paint. These multinationals control licensing, class approvals and defence-grade specifications. While some manufacture in India, there is no Indian-origin company with an internationally approved marine coating. That gap is what drew Cochin Shipyard, India’s largest state-run shipbuilder, to back Neiox Eco Cycle. The startup upcycles industrial air pollutants into an advanced additive that can be integrated into marine paint and applied directly to ship hulls. It thus turns waste into a functional input for one of shipping’s most consequential, if least visible, layers, said Neiox’s Pottekkat. Neiox is positioning itself not just as a domestic alternative, but as a regulation-compliant challenger offering non-toxic, carbon-negative coatings. The company claims its technology collapses the seven-layer coating stack into a single, non-toxic application that tackles both corrosion and biofouling—cutting downtime, fuel loss and environmental risk in one stroke. For Cochin Shipyard, it checks several boxes at once. “Risk-adjusted technology exposure is often the priority (for investors such as Cochin Shipyard): small grants help create an early pipeline of tested solutions that could become relevant to future operations without committing large balance-sheet capital upfront," said Sumanta Biswas, assistant director at CUTS International, a policy research and advocacy group. Compliance with green norms is another imperative for Cochin Shipyard. Globally, the shipping sector has pledged to reach net-zero greenhouse-gas emissions by around 2050 under a revised strategy adopted by the International Maritime Organization, with interim emissions reduction targets set for 2030 and 2040. Beyond gas In Mumbai, MGL, a stodgy, listed city gas utility. was led by the same rationale to invest in 3ev. The startup offers aftermarket services such as battery-as-a-service (BaaS), where it plans to deploy a bulk of the ₹120 crore funding from MGL, given that batteries are the most critical and fastest-degrading component in commercial EVs, making uptime, replacement and life-cycle management central to fleet economics. During its earnings call for the second quarter of fiscal year 2025-26, MGL’s management struck a careful tone: EVs, it said, are unlikely to dent compressed natural gas (CNG) demand in the near term. Yet, in the same breath, the company acknowledged investments such as 3ev as part of exploring adjacent energy transition opportunities, describing it as a long-term equity bet with limited near-term financial impact. “Mahanagar Gas’s management was actively analysing the transition to electric mobility—what it would mean for gas distribution, transportation demand… It wasn’t just an internal discussion; investors and analysts were asking the same questions," said Peter Voelkner, managing director of 3ev. The move marks MGL’s first meaningful step into EV operations, though the company had earlier dipped its toe into e-mobility, including EV charging infrastructure, in collaboration with Tata Power in 2019. More recently, MGL acquired a 44% equity stake in International Battery Company India last February. “MGL’s earlier engagement with Tata Power in 2019 on EV charging infrastructure was part of nascent sector exploration. Its lead investment in 3ev represents a meaningful escalation, transitioning from collaborative pilots to capital commitments in core EV value-chain companies," said Biswas. 3ev is currently piggybacking on MGL’s footprint in Mumbai, with pilot projects placing fast-charging infrastructure at the utility’s CNG filling stations. Beyond Mumbai, the company operates independently in Bengaluru, Hyderabad, Chennai and Coimbatore. The green imperative If utilities and shipyards are making cautious, balance-sheet-light bets, global climate capital is moving with a different calculus. International investors and corporates, less constrained by domestic exit timelines, are increasingly backing Indian climate startups tackling longer-cycle problems such as carbon sequestration and regenerative agriculture—areas where traditional venture capital has been slow to commit. While Varaha is one example, other Indian climate-tech startups have also benefited. Arya.ag, which builds farm-gate infrastructure to reduce post-harvest losses, recently raised ₹725 crore in a Series D round led by GEF Capital Partners, a global private equity firm. “Global investors are greening their portfolios. Supporting climate projects in India helps them meet sustainability targets while accessing long-term growth," said Pradeep Singhvi, executive director, energy and climate practice, Grant Thornton Bharat, a management consultancy. Varaha’s model is simple: balance long-cycle carbon bets with faster climate and commercial returns. Flush with more than $42 million in funding, the startup last year struck a deal with Google, which agreed to purchase 100,000 tonnes of carbon dioxide removal credits from the Indian startup. A carbon removal agreement, or carbon purchase agreement (CPA), is a contract by which a company such as Google commits to buying future carbon dioxide removal credits from a supplier such as Varaha. It marked Google’s first carbon-removal agreement tied to a project in India and the largest involving biomass-based biochar—often dubbed “black gold" for soils. Varaha has since followed this up with another agreement with Microsoft last week, making it the tech company’s first carbon removal purchase in Asia. With biochar credits typically priced between $150 and $160 per tonne, a back-of-the-envelope calculation values these deals at roughly $16 million. So far, the New Delhi-based startup is the only Indian company to be listed on carbon removal standard and registry Puro.Earth. Prior to the recent infusion by Mirova, it had received funding from RTP Global, Japan’s Norinchukin Bank, Omnivore and Orios Venture Partners. Yet, interest from venture capital remains thin. Most climate-tech startups that have raised funding in India fall into adaptation-focused products—areas with clearer customers, shorter payback cycles and easier monetisation. Scale remains elusive across much of climate tech. There are around 800 viable climate-tech startups in India, but less than 3% have raised Series B or beyond. “Until carbon markets mature and pricing becomes predictable, many venture investors will remain cautious," said Singhvi. In India, venture capital funding has largely concentrated on EVs and mobility, where risks and timelines are better understood. Since 2022, roughly $6 billion has flowed into startups spanning electric vehicles, battery technology and related transition sectors, producing two mobility unicorns, Ola Electric and Ather Energy. Even so, scale remains elusive across much of climate tech. “There are around 800 viable climate-tech startups in India, but less than 3% have raised Series B or beyond—it’s a serious scaling gap," said Biswas. Large upfront capital needs, long regulatory lead times and dependence on government adoption “keep many VCs wary," he added. “Mitigation demands patient capital; adaptation offers short payback cycles and clearer business models." Total climate-tech funding fell to $657 million in 2025, down from $1.17 billion in 2024 and $1.5 billion in 2023, according to data from Tracxn. The decline has been driven largely by a sharp slowdown in EV mobility funding, which has more than halved since 2023. The contrast is sharper when set against the behaviour of large global financial institutions. In 2021, Larry Fink, chief executive of BlackRock, predicted the emergence of a new generation of climate unicorns—companies built around green hydrogen, agriculture, steel and cement rather than consumer internet. Four years on, that thesis has hardened into investment strategy. Large asset managers increasingly view climate risk as a material financial risk, not an environmental externality. BlackRock, alongside Temasek, has backed companies such as Antora Energy, which develops thermal batteries for industrial decarbonisation, and ConnectDER—signalling how private capital is gravitating toward climate infrastructure and industrial transition plays that sit beyond the comfort zone of traditional venture capital. For shipyards, utilities and global asset managers alike, climate technology is no longer an abstract ESG theme but a hedge against operational, regulatory and market risk. Whether venture capital eventually follows, or is permanently leapfrogged by patient capital with longer horizons, will shape not just how India decarbonises, but who gets to build and own that transition.