India’s consistent climate action initiatives have received strong support from Japan, a key proponent of global climate efforts, according to a senior executive of the National Investment & Infrastructure Fund (NIIF).
At DealStreetAsia’s 10th Asia PE-VC Summit in Singapore last week, Krishna Kumar, a partner at NIIF’s India-Japan Fund (IJF), noted that this support emanates from India’s policy to become net zero by 2070.
Although it is a tall order, efforts are underway to ensure that net zero is reached. Kumar observed that Japanese officials see this alignment working well with the Indian government, which is why the Japan Bank for International Cooperation (JBIC) was keen on doing a climate fund with NIIF.
JBIC’s $300-million investment—their largest equity commitment—has encouraged many Japanese companies to partner with Indian firms in areas such as climate, the executive stated.
The India-Japan Fund is a strategic bilateral partnership between the Government of India and JBIC, both anchor investors. It invests in India’s environmental preservation sector while fostering co-investments and partnerships, supporting green industries and high-emission sectors in transition. By mobilising cross-border capital, IJF provides a model for institutional investors, fund managers, and policymakers to scale sustainable growth and strengthen India-Japan ties.
NIIF is an alternative asset manager anchored by the Government of India. The investment platform has over $4.9 billion in assets under management through its funds: Master Fund, Private Markets Fund, Strategic Opportunities Fund, and India-Japan Fund.
Edited excerpts from a fireside chat with Krishna Kumar:
What is driving the recent surge of Japanese capital into India, and do you see this trend as sustainable?
Based on my three decades of experience, I’m seeing Japanese financial investors, companies, and trading houses making more visits to India. When they visit, it comes after long discussions at the Tokyo headquarters and the decision to spend money.
There are three reasons why Japan is more interested in India. First, the relationship between India and Japan has strengthened over the years. Second, they want to diversify their investment beyond what they have been doing traditionally in the last 10–20 years. Third, India is seen as a bright spot. Japanese companies have already been successful in sectors like regulatory, automobiles, and others, and now they are looking to expand their presence and set up new industries.
For example, SMBC is a 10% shareholder in NIIF’s infra financing platform. Our fund of funds has had great traction in Japan, encouraging investors to look at our platform. We have already made a few breakthroughs. This time, I feel words and actions are going together.
How do Japanese investors view India’s climate transition? Is there a greater appetite for climate and transition focus strategies in the country?
Japan is a big proponent of climate action and ensuring a better planet. They see this alignment working well with the Indian government, which is why JBIC was keen on doing a climate fund with NIIF for India.
JBIC’s $300-million investment is their largest equity investment ever. I am very happy to have a Japanese partner who has committed capital for the long term and at the largest scale. This has led many Japanese companies to partner with Indian companies in areas such as climate. For example, we are talking to Japanese companies on rare earth magnets and are also in discussions to set up cell manufacturing and recycling—sectors where Japan has the technology and India can be the manufacturing base.
On the climate side, the alignment of interests is much stronger, and Japan wants to support India in its climate initiatives.
Which sectors are driving climate investments in India, and why are investors attracted to them?
If I were to take the two big sectors driving climate investments, they are renewable energy and electric mobility. These two segments alone attracted $1.75 billion of private capital out of the $2.25 billion that came into the country last year. Out of that $1.75 billion, investments were largely directed towards renewable energy and electric mobility.
This is mainly because of India’s ambitious agenda to source 50% of its energy from renewables in the overall energy mix. Renewable energy growth has been phenomenal. Initiatives under the PLI (Production Linked Incentive) scheme support manufacturing of solar panels and renewable energy. On the electric mobility side, there is also a PLI for EV manufacturing, and the government ensures incentives for capex invested by companies. Renewable energy pricing has also become highly competitive compared to conventional energy prices.
In recycling, the government has introduced EPR (Extended Producer Responsibility) guidelines. This means that companies selling electronic goods must ensure they are collected, reprocessed, and recycled in a climate-friendly manner. Companies are emerging to formalise the supply chain for procurement and recycling, ensuring critical metals and minerals are fed back into the system. It is still early days, but in five years, we expect to have invested in several recycling companies.
Japan will play an important role here, providing technology to recycle more efficiently—for example, plastics. India has also issued guidelines on plastics, requiring companies to ensure a percentage of their plastic is recycled, rising over the next few years. This creates opportunities for recycling companies, and Japan, with its advanced technology to recycle plastic back into food-grade quality, can play a key role. When technology participation is combined with regulatory requirements and a large market, this collaboration works well and has strong potential for growth.
What are the key challenges in scaling climate investments in India?
My biggest problem is scale. In climate, although we have seen close to 220 deals in the last two years, we have only managed to do two deals, and hopefully one more soon. Before that, let me outline the fundamental issues we see.
Number one, companies don’t have a business model that is viable from a profitability perspective. Where the business models are good, valuation becomes an issue, as these are expensive. Third is government. We are working with companies to ensure they meet our thresholds on all three aspects.
From a Japan perspective, scalability can come through technology, which is crucial in climate. Unlike infrastructure, which was more of an execution play, climate relies on technology. Technical intervention in some segments can bring the price down, make the service or product scalable, and drive adoption.
For example, in recycling, technology is extremely important to recycle products and get them back into the ecosystem so that the recycled product is on a par with virgin material. Today, recycled plastic is 50% more expensive than virgin plastic. Why would a consumer company buy that plastic? Technology can help bring down the cost, and with scale, it can be done much more effectively.
Where do you see the biggest opportunities for IJF to scale, and could India explore similar cross-border partnerships with other countries to mobilise capital in the climate and transition sectors?
We’ve mapped climate in India into three broad pockets: energy transition, energy efficiency, and circular economy.
As of now, scalable, large-capital opportunities exist mainly in energy transition—renewable energy and electric mobility. Our sister fund focuses on renewable energy because it is asset-ready, and we focus on electric mobility.
For energy efficiency, we have seen companies, but they currently lack the ability to scale and provide large-scale solutions. They are largely regional players. At present, we are talking to some European companies with technology to improve efficiency in traditionally high-emitting sectors like cement and steel, but it is still early days.
In the circular economy, from a private equity perspective, companies capable of absorbing $50 million or more need a certain scale and size. Energy efficiency and circular economy are still in early stages. Two to three years down the line, I am hopeful circular economy will scale, while efficiency might remain on a case-by-case basis.
On bilateral relationships—yes, we can. NIIF, as a quasi-sovereign wealth fund with government backing, receives inbound interest from other countries looking to develop similar climate-focused products. It’s still early to comment on any specific relationships, but there has been some inbound interest and preliminary bilateral discussions on climate.
How can international agreements and institutions align given the diverse interests of governments?
Absolutely, it’s difficult. The foundation of the India-Japan Fund was the alignment of interests between India and Japan, which has been a key driver. The idea originated in 2020 when the prime ministers of both countries met and decided, as part of a green initiative, to collaborate. This led to the concept of a Climate Fund, with Japanese companies investing in India across climate and non-climate sectors.
Diverse interests, or changes in government, are a big risk. Today, India—likely due to its consistent policy approach—does not face such risks regarding its agenda. For a successful bilateral fund, you would want the same agenda alignment with the partner country. In short, alignment of interests between the two governments is essential to establish a climate-focused fund.
What would success look like for India as a climate investment destination, and how to see this collaboration between India and Japan help achieve that vision.
For climate, success would be to emerge as a lasting asset class in India. If I look at the last 30 years of private equity, we started with private equity in the late 90s, then moved to infra in the early 2000s, and later real estate. Today, both infra and real estate are established asset classes. We want climate to reach that stage, where we can demonstrate successful IPOs of climate companies.
