Public Sector Firms Drive Climate Innovation Amid VC Hesitation

In a notable shift in investment patterns, public sector firms in India are stepping up to support climate technology startups, where venture capitalists have shown reluctance. One such startup, Neiox Eco Cycle, focuses on creating carbon-negative, non-toxic marine coatings for the undersides of ships. Founded by Akhil Raj Pottekkat, Neiox secured funding not from traditional venture capital but from the state-owned Cochin Shipyard, which invested ₹30 lakh in November 2024, followed by an additional ₹75 lakh under its maritime innovation programme.

Neiox is not alone in attracting unexpected backing. In November, Mahanagar Gas Ltd (MGL) invested ₹120 crore into 3ev, a Bengaluru-based electric vehicle startup, acquiring a 30.97% stake. Similarly, Varaha, another climate-tech startup, received $30.5 million from Mirova, the sustainable investing branch of French financial group Natixis. These investments signal a trend where legacy institutions and public sector undertakings (PSUs) are stepping in to fund climate innovation, moving away from the rapid exit model favored by many venture capitalists.

Investment from these public entities, while often modest, is seen as a long-term strategy. Rajan Mehta, founder of Climate Ventures Partner, highlighted that the traditional VC model is not suited for the patient capital required in most climate technologies. Instead, these public sector investors are hedging against regulatory risks and future demand shifts.

The backdrop to this financial support is complex. According to data from Tracxn, India has seen the emergence of 642 climate-tech startups over the past three years, with 492 securing funding. Yet, only 61 have reached Series B funding, and 678 have shut down since January 2023. This disconnect illustrates the challenges faced by many startups in scaling their operations.

In the shipping industry, the hull of a vessel is critical yet often overlooked. It is exposed to harsh marine conditions that can lead to corrosion. Existing coatings typically require multiple layers, contributing to operational inefficiencies and increased emissions from vessels that predominantly use polluting fuels derived from crude oil. Current anti-fouling paints rely on biocides, which are increasingly being restricted under European environmental regulations.

Neiox aims to address these issues by developing a single, non-toxic coating that reduces both downtime and environmental risks. The startup’s approach transforms industrial air pollutants into advanced additives for marine paint. This innovation not only fills a gap in the Indian market—where no domestically produced marine coating meets international standards—but also aligns with global sustainability goals.

For Cochin Shipyard, this investment checks multiple boxes, as it allows exploration of new technologies without significant upfront capital. Sumanta Biswas from CUTS International noted that such small grants can create a pipeline of tested solutions relevant to future operations.

Similarly, MGL’s investment in 3ev reflects a strategic pivot towards electric mobility. The startup focuses on battery-as-a-service (BaaS), addressing the critical need for efficient battery management in commercial electric vehicles. MGL’s management has acknowledged the long-term nature of this investment, viewing it as an opportunity to explore adjacent energy transition opportunities.

While public sector support is crucial, global climate capital is also becoming increasingly involved in the Indian market. International investors are backing climate startups that tackle longer-term challenges like carbon sequestration and regenerative agriculture, areas where traditional venture capital has hesitated. For instance, Arya.ag recently raised ₹725 crore in a Series D funding round led by GEF Capital Partners.

Varaha’s model exemplifies this approach, balancing long-term carbon investments with quicker returns. Flush with over $42 million in funding, the startup secured a deal with Google for carbon dioxide removal credits, marking the first such agreement tied to a project in India.

Despite these developments, venture capital funding for climate technology in India remains limited. Most investments have focused on adaptation products with clearer customer bases and shorter payback cycles. Singhvi from Grant Thornton Bharat emphasized that the maturation of carbon markets and predictable pricing are essential for attracting more venture capital.

Since 2022, approximately $6 billion has been invested in electric vehicles and related sectors, leading to two unicorns in this space. Nonetheless, the scaling of climate-tech startups remains a challenge. Biswas pointed out that while there are around 800 viable climate-tech startups in India, less than 3% have raised Series B funding or beyond.

The overall climate-tech funding landscape has seen a decline, falling to $657 million in 2025 from $1.17 billion in 2024. The downturn is largely attributed to a slowdown in electric vehicle funding, which has more than halved since 2023. This contrasts with the actions of large global financial institutions, which now view climate risk as a significant financial consideration.

As investment strategies evolve, the role of public sector firms and global asset managers in supporting climate technology is becoming increasingly important. How venture capital adapts to these changes will significantly influence the future of climate innovation in India and beyond.