Climate Insider Brief:
- The Chennai-based lender has raised $65 million from DFC and OeEB to support growth-stage companies in renewable energy, sustainable agriculture, and green buildings, marking its debut in climate-focused financing.
- The fund aims to bridge financing gaps for climate-focused SMEs in India, supporting net-zero goals by providing tailored funding solutions for businesses in sectors like circular economy and water conservation.
- Northern Arc’s fund launch aligns with increased climate finance in India, following recent high-profile fund closures by Avaana Capital and SIDBI, indicating growing momentum in climate tech investment across the region.
Chennai-based non-banking lender Northern Arc has garnered $65 million in debt commitments to fuel its first-ever climate fund. Aimed at bolstering sustainable development across India, the fund will channel debt financing to growth-stage companies in sectors like renewable energy, energy efficiency, green buildings, and sustainable agriculture. This move marks Northern Arc’s strategic entry into dedicated climate financing, a growing focus area in India’s financial landscape.
The fund has received strong international backing, with the United States International Development Finance Corporation (DFC) committing $50 million and the Development Bank of Austria (OeEB) contributing $15 million. The climate fund, based in GIFT City, Gujarat, will support companies leveraging technologies in solar energy, water conservation, and circular economy practices to drive climate resilience.
“This transaction aligns with DFC’s goal of expanding financing for small and medium-sized businesses that are promoting climate mitigation action and resilience through innovative technology including in the energy, agriculture, and e-mobility sectors,” said Justin Andrews, Acting Vice President of Small Business and Financial Services at DFC.
Northern Arc’s climate fund intends to address the unique financing needs of climate-focused SMEs, a key growth segment in India’s green transition. Ashish Mehrotra, Managing Director and CEO of Northern Arc, emphasized the fund’s role in sustainable development. “By channeling these funds into green projects across our focus sectors, we aim to create a cascading effect that promotes sustainable development,” Mehrotra stated.
Bhavdeep Bhatt, CEO of Northern Arc Investment Managers, highlighted the need for accessible climate finance at the grassroots level. “For net zero to become a reality, climate-focused SMEs must be adequately funded to promote sustainable practices. However, SMEs often struggle to access growth funding, underscoring the need for tailored underwriting that considers their unique value propositions and financing needs,” Bhatt added.
The establishment of Northern Arc’s climate fund follows the company’s announcement of a INR 1,500 crore ($178.5 million) alternative investment fund with a green shoe option last month. The fund is part of the company’s broader effort to support India’s climate transition by directing capital into MSMEs, affordable housing, and other key sectors.
Northern Arc, established in 2009, has facilitated over INR 1.9 trillion in financing across India, impacting over 111 million lives through sectors like MSME, microfinance, vehicle finance, and agricultural supply chain finance. With an AUM of INR 151,210 million as of September 30, 2024, Northern Arc continues to gain traction among institutional investors, including IFC, Sumitomo Mitsui Banking Corporation, and LeapFrog.
The launch of this fund comes amid heightened interest in climate tech financing in India. Recently, Avaana Capital closed its climate fund at $135 million, exceeding its target, and SIDBI secured $24.5 million from the Green Climate Fund (GCF) for its sustainability fund earlier this year. Climate-focused funds have seen a surge in activity in 2024, reflecting the growing priority of climate resilience and sustainable growth in India’s financial sector.
Climate Insider Notes:
- International Backing: Major support from DFC and OeEB signals international confidence in India’s climate finance sector.
- SME Focus: Addresses financing gaps for climate-focused SMEs, crucial for India’s net-zero ambitions.
- Broader Industry Trend: Joins recent climate tech funding activity, with several funds prioritizing sustainability.
- Sector Impact: Expected to boost solar, agriculture, and water technologies, advancing sustainable development across key sectors in India.
Source: Inc42
Featured Image: Credit: Northern Arc
