Introduction: Investing for a Better Tomorrow
Picture an ordinary person – saving a portion of their salary, investing monthly through a mutual fund, and dreaming of financial returns to ensure a more secure future. Now imagine another person: an entrepreneur building clean energy technology, and seeking seed funding to scale his venture. These are two sides of the same coin: Finance.
In the past, finance was often about profit alone. But gradually, with environmental crises looming large, regulatory changes, and shifting public values, money is being reimagined and repurposed: not just as a means to accumulate wealth, but as an incentive to mobilise climate action.
This article charts this financial evolution – how mutual funds democratized investing, how venture funds fueled innovation, and how a new wave of climate venture funds is now financing the fight against climate change. The world of money is changing – from mere profit pools to engines of climate action.
The Power of the Fund
A “fund” is, at its simplest, a pool of capital collected from many investors and managed by professionals or institutions who allocate it to assets – stocks, bonds, startups, real estate, etc. But beyond that, a fund also represents collective intent: what those investors believe in, what risks they are willing to take, what future they hope to build.
- While Mutual funds allow individuals with small sums to participate in markets, they’d otherwise find inaccessible;
- Venture capital funds take higher risks, backing startups that might fail but could also produce outsized returns; and
- Climate venture funds go even further: choosing not just high returns, but also environmental impact as part of the success criteria.
When enough capital flows toward sustainability, it can shift entire industries: fueling renewable energy, clean transport, efficient infrastructure, carbon removal, etc. Finance thus becomes not just about money but about shaping a better world.
Mutual Funds – The People’s Gateway to Investing
For decades, mutual funds have been the most accessible entry point for everyday investors. They pool money from individuals and invest in a diversified portfolio of assets – equities, bonds, or a mix – depending on the investor’s goals and risk appetite.
One doesn’t need to be a millionaire to invest in global markets or corporate growth stories. Through mutual funds, even small investors can benefit from professional management, diversification, and long-term wealth creation.
Needless to say, mutual funds have actually democratized finance and made investing accessible to everyone:
- Affordable entry point: With small monthly SIPs (Systematic Investment Plans), even everyday savers can participate in the growth of large companies and financial markets.
- Built-in diversification: Mutual funds spread investments across multiple sectors and securities, helping balance risk and reward.
- Expert guidance and oversight: Professional fund managers handle research and decision-making, while regulatory supervision ensures greater transparency and investor protection.
There are various kinds of mutual funds that aggregate capital from multiple investors and invest in diversified portfolios with the aim of creating wealth. But it’s the ESG Mutual Funds that go a step further and select specific companies to invest in based on certain environmental, social, and governance criteria.
ESG Mutual Funds - Where Sustainability Meets Investing
ESG (Environmental, Social, and Governance) mutual funds are investment funds that consider more than just profits. They look at how responsibly a company operates – how it treats the environment, communities, and governance practices. These funds avoid companies that harm the planet and prefer those with strong sustainability standards.
ESG mutual funds grew significantly in India between 2019-2021 from ~INR 2,700 crore in AUM in 2020 to nearly ~INR 9,900 crore by end-March 2021. However, there was a decline in AUM in ESG in FY 2023 from ~INR 12,447 crore in the previous year to ~INR 10,427 crore. Some reasons cited were market volatility, energy price swings, underperformance relative to traditional funds, and shifting investor sentiment. Also, regulatory and disclosure standards were still evolving.
Currently, ESG investments in India are showing resilience with a growing AUM of ₹10,946 crore.
Some notable ESG-compliant mutual funds in India are Quantum ESG Best in Class Strategy, Invesco India ESG Integration Strategy Fund, and SBI Magnum Equity ESG Fund.
Globally, ESG / sustainable mutual funds & ETFs have seen large inflows, especially in the 2020–2022 period, as climate risk rose on corporate and regulatory agendas. Although some funds have experienced backlashes or performance slumps, overall asset growth remains strong.
Venture Funds - Fueling Innovation
While mutual funds invest in established companies listed on the stock market, venture funds focus on something entirely different – the future. They invest in early-stage startups that are developing new technologies, products, or services with the potential for massive growth.
In simple terms, a venture fund collects money from multiple investors — called Limited Partners (LPs) – such as wealthy individuals, family offices, corporations, or institutional investors. This money is managed by professional investors known as General Partners (GPs), who identify and back promising startups.
Here’s how the process works step by step:
Raising the Fund: The venture fund’s managers pitch their investment strategy to potential investors – for example, focusing on climate tech, fintech, or mobility. Once the commitments are made, the fund is created and begins its investment cycle.
Finding Startups: The fund scouts for innovative founders and startups with high potential. This could include companies developing renewable energy systems, electric vehicle batteries, or AI-driven waste management solutions.
Investing in Early Stages: Venture funds typically invest in startups across stages:
- Seed Stage: when the idea is just being developed.
- Early Stage: when the product is built and being tested in the market.
- Growth Stage: when the startup is scaling operations and revenues.
(These investments are high risk because most startups fail – but those that succeed can deliver 10x to 100x returns, compensating for the losses.)
Active Support & Mentorship: Venture capitalists don’t just write cheques – they also guide founders, connect them with networks, help recruit key talent, and prepare them for future funding rounds. In many cases, their experience and mentorship can make the difference between success and failure.
Exit and Returns: After several years (often 5-10), when the startup matures or gets acquired, the venture fund “exits” its investment – meaning it sells its stake to realize profits. These returns are then distributed among the investors.
A good example of how venture capital works in action: When Sequoia Capital invested in Zerodha, Freshworks, or BYJU’S in India, they weren’t backing established companies – they were betting on ideas and founders. Similarly, global VCs like Kleiner Perkins and Andreessen Horowitz took early risks on Google, Airbnb, and Tesla long before they became household names.
In essence, venture funds are the engines of innovation – turning bold ideas into market realities, and now, increasingly, into solutions for a sustainable future.
Climate Angels and the Rise of Climate Venture Funds
What are Climate Venture Funds
The same model as followed by venture funds (detailed above) also applies to climate venture funds, which take similar risks – but this time, in startups working to fight climate change through innovation in energy, mobility, or carbon reduction.
These are venture funds explicitly focused on climate-tech: startups whose core business either reduces greenhouse gas emissions, improves resilience, or mitigates pollution or resource inefficiencies. Key sectors include:
- Renewable energy & storage
- Clean mobility & electric vehicles
- Sustainable agriculture & food systems
- Circular economy, waste, water tech
- Carbon markets and removal technologies
For example, Climate Angels in India is a SEBI-registered Category I Investment Fund focused on early-stage climate technology and pollution reduction in India. It brings together climate-tech entrepreneurs, strategic investors, and venture capitalists to support startups working on innovative solutions. Climate Angels was the first climate-focussed venture fund in India, and a perfect example of a climate venture fund in action. It has invested in 20+ climate-tech startups since its inception.
Other Indian Climate Venture Funds include:
- Green Frontier Capital, which launched a first-ever Category II AIF in 2024 aimed at climate tech startups, with a target corpus of ₹1,500 crore, focused on low-carbon transition technologies.
- EAAA Alternatives’ India Energy Transition Fund, which plans to invest up to ₹400 billion in clean energy over the next 4–5 years.
Some Global Climate Venture Funds:
- VoLo Earth Ventures (US), which raised $135 million for its second climate-tech fund, focused on early-stage startups that reduce carbon emissions (mobility, industry, etc.).
- Green Climate Fund (GCF): While more of a multilateral fund (not pure venture), GCF has committed $1.2 billion across new climate projects in developing countries (Asia, Africa) including in India, for renewable and energy efficiency projects.
In fact, global renewable energy investment rose ~10% in the first half of 2025 compared to 2024, totaling about $386 billion, even amid political headwinds.
Why Climate Venture Funds are Different
Climate venture funds stand apart because they invest with a dual purpose – generating profits and delivering measurable climate impact. Unlike traditional venture capital, these funds focus on solutions that cut emissions or improve sustainability, such as clean energy, EVs, or carbon capture. They often take a longer-term view, since climate technologies take time to mature and scale.
They also track impact metrics – like tonnes of CO₂ reduced or renewable energy generated -alongside financial returns.
Another key difference is their collaborative model: many blend private investment with public or development finance to de-risk early innovations.
In short, climate venture funds combine the agility of startups with the urgency of climate action – proving that doing good and doing well can go hand in hand. By funding breakthrough technologies and resilient infrastructure, they make it possible for entire industries – energy, transport, agriculture, waste management – to transition faster toward sustainability.
Conclusion
The journey from mutual funds to venture funds and now to climate venture funds reflects more than a financial evolution — it marks a shift in values and vision for the future. Investing is no longer just about growing wealth; it’s about shaping the world that wealth creates.
Mutual funds opened the doors for millions of everyday investors. Venture funds unlocked innovation and entrepreneurship. And now, climate venture funds are unlocking something even greater – the power to finance solutions that safeguard our planet.
As the climate crisis deepens, capital is emerging as one of our strongest tools for change. Every rupee or dollar invested in clean technologies, sustainable businesses, and resilient systems is a vote for a liveable future.
The next phase of investing will belong to those who align profit with purpose – to investors who see returns not just in numbers, but in cleaner air, stable climates, and thriving communities.
Because in this new age of finance, capital is no longer just smart – it’s conscious.
