ESG-led Investments Double With $7.9 Bn To Reach 13% In 2022

India saw investments of USD 61.6 billion in a challenging year for private equity globally — in a slight moderation of 12 per cent over 2021’s peak value of USD 69.8 billion, according to a report.

ESG emerged as a breakout theme in 2022, with investments in clean energy and EV accelerating to reach USD 7.9 billion, accordingly to Bain & Company’s annual ‘India Private Equity Report 2023’ released on Wednesday, in collaboration with Indian Venture and Alternate Capital Association (IVCA). 

Traditional sectors led by BFSI, healthcare, energy and manufacturing demonstrated resilience and grew by 50 per cent to approx USD 28 billion enabled by strong domestic consumer sentiment, the report said. 

“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 per cent of the total PE-VC investments in 2022 at nearly USD 7.9 billion, from around 5 per cent 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.

ESG investment is largely concentrated in clean energy (solar, wind power, etc.) and electric mobility — these themes contributed to approximately 90 per cent share of USD 19.2 billion invested in ESG across 2018-22. 

Clean energy, especially solar, saw strong deal activity in 2022 with investments of USD 5 billion, supported by increasing cost competitiveness of solar against thermal energy, regulatory tailwinds for renewables and an acceleration in the climate agenda. 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's Rise in Tata EV. 

The electric mobility segment is also growing and has attracted more than USD 4 billion in investments since 2018. The sector is gaining traction driven by an increasingly favourable TCO.

“There is significant movement in the Indian EV market which saw more than 150 per cent growth in deal value to USD 2 billion in 2022 over the past five years. EV 2Ws are expected to see increasing penetration (from 2-3 per cent in 2021 to 18-20 per cent in 2026) as they become increasingly cost competitive with approx 40-45 per cent lower total cost of ownership vs ICE, given FAME subsidies and further reductions expected in battery costs,” said Ronika Sapra, Bain & Company, Associate Partner and co-author of the report. 

Overall, 2022 was a year of recalibration for PE-VC investments in India with a tempered outlook for 2023.

India’s share of private equity and venture capital (PE-VC) investments in Asia-Pacific grew from nearly 15 per cent to 20 per cent from 2021 to 2022, as China +1 tailwinds and India’s macro robustness made it a bright spot for investing, amidst decelerating capital flow in the region.

While the first half of 2022 continued the momentum of 2021, the private investments ecosystem slowed in the second half as global sentiment turned conservative amidst mounting geopolitical tensions and cascading macroeconomic challenges.

Private Equity in India has seen remarkable growth, especially in the last decade, from an investor base of 200 to more than 800 active investors, as well as an expansion in exit opportunities, according to the report.