The evolution of impact investing

Summary: Impact Investing vs. Other VC Strategies

Traditional investing (VC)

• Goal: Maximize financial returns only.
• Impact: Environmental or social effects are ignored or not considered in decisions.

Responsible investing (ESG / exclusions)

• Origin: Roots in 1960s exclusionary screens (e.g. tobacco, Vietnam war), formalised with ESG’s rise (e.g. UN PRI 2006).
• Approach:
• Integrates Environmental, Social and Governance (ESG) factors into financial analysis.
• Often driven by regulation and risk management ("do no harm" / compliance mindset).
• Uses frameworks such as SASB, GRI, and WEF/IBC’s 21 core metrics to report and benchmark ESG performance and contributions to the SDGs.
• Challenges: Data quality, accessibility, consistency, transparency; frequent use as a marketing tool → risk of greenwashing.
• Nature: Largely reactive and compliance-oriented.

Sustainable investing

• Goal: Generate positive outcomes for all stakeholders (people, planet, and profit) and aim for financial outperformance.
• Goes beyond ESG box-ticking: More proactive than responsible investing.
• Example framework: B Impact Assessment by B Lab.
• ~200 questions; once verified, companies can become B Corps.
• B Corps are legally required to consider impacts on workers, customers, suppliers, community, and environment.

Impact investing

• Regulatory lens (EU SFDR):
• Article 8: Products that promote environmental or social characteristics → typically responsible & sustainable investing.
• Article 9: Products with sustainable investment as their explicit objective and a designated reference benchmark → impact investing.
• Conceptual lens:
• Internal impact: How a company operates and treats stakeholders (ESG, operations).
• External impact: The specific positive impact created by the product or service itself.
• Impact investing is solution-oriented: The core business model directly addresses a major environmental or social problem.

How AENU Defines and Applies Impact

Impact thresholds

AENU only invests in technologies that can, at scale, achieve one of:

• Avoid or capture ≥ 100 Mt CO₂, or
• Reach ≥ 10 million people with significant outcome changes for primary stakeholders.

Six impact guidelines

Used to assess whether a company meets AENU’s thresholds:

1. Intentionality – The company explicitly aims to create positive impact as a core objective.
2. Impact logic – Clear, credible causal pathway from product/service to meaningful environmental or social outcomes.
3. Depth and Breadth – Size and intensity of the problem addressed and the scale of the solution’s impact.
4. Interlock – Impact is structurally embedded in the business model and cannot be easily separated from commercial success.
5. Additionality – The impact would likely not happen (or not as quickly / at the same scale) without this solution or investment.
6. Impact Measurement – Ability and commitment to measure, track, and report impact over time.

Examples AENU does not consider impact-aligned

1. Decarbonizing high-emitting industries (e.g. oil refineries, chemical plants)

• Scenario: Technology that reduces emissions in fossil-based operations.
• AENU view: This is “Reform vs. Transform”. It cleans up existing high-emission systems rather than enabling a full transition away from them.
• Fails: Impact Logic – AENU prefers solutions that accelerate a shift to renewables and post-fossil systems.

1. Sustainable fishing lures

• Scenario: More sustainable equipment for existing fishing practices.
• AENU view: Incremental improvement within an industry they believe should be transitioned away from.
• Preference: Support companies driving a move from fish to alternative, non-animal-derived proteins.

1. Inductive liquid heater kettles (more efficient kettles)

• Scenario: Household device that reduces energy waste and non-recyclable waste.
• AENU view: The underlying problem (energy use of kettles) is too small relative to global climate and resource challenges.
• Fails: Depth and Breadth – Impact scale is insufficient to meet AENU’s thresholds.

Direction of Travel

• Impact startups raised a record €39B in 2021 (vs. €16B in 2020), and opportunities are growing.
• To make impact investing the new normal, the ecosystem needs:
• More breakthrough technologies,
• More dedicated impact investors,
• Stronger, more transparent impact frameworks and measurement.

For more detail on AENU’s methodology, see their published impact framework (linked in the original text).

The evolution of impact investing in venture capital

Impact investing sits on a spectrum of approaches to capital allocation. In venture capital, it can be distinguished from traditional, responsible, and sustainable investing by its core objective: delivering measurable, solution-oriented social and/or environmental outcomes alongside financial returns, with that impact being central to the product or service itself.

1. Traditional investing

In venture capital, traditional investing focuses solely on financial return:

• Capital is allocated to startups based on expected financial performance.
• Little to no consideration is given to environmental or social consequences.
• A company’s impact (positive or negative) is largely irrelevant to the investment decision.

This approach has historically dominated VC, but is increasingly seen as insufficient in the context of climate risk, inequality, and systemic sustainability challenges.

2. Responsible investing (ESG as compliance)

Responsible investing emerged as investors began to exclude harmful sectors and integrate basic Environmental, Social and Governance (ESG) criteria:

• Originates from values-based exclusions (e.g. tobacco, weapons, Vietnam war involvement) in the 1960s.
• Formalized through ESG integration, especially after the 2006 UN Principles for Responsible Investment.
• Investments are screened or adjusted to meet regulatory or minimum ESG standards.

Key ESG frameworks and initiatives include:

• GRI (Global Reporting Initiative) – since 2000, for sustainability reporting.
• SASB (Sustainability Accounting Standards Board) – since 2018, for financially material ESG disclosure.
• WEF/IBC + Big Four 21 core metrics – launched in 2020 to align corporate reporting with the UN SDGs.

Challenges:

• Data accessibility, consistency, and transparency remain weak.
• ESG is often treated as a reactive, compliance-driven exercise rather than a strategic driver.
• Risk of greenwashing, where companies overstate ESG performance for marketing purposes.

In practice, responsible investing usually means: “We invest broadly, but we avoid the worst harms and comply with ESG rules.”

3. Sustainable investing

Sustainable investing goes beyond ESG box-ticking and aims to:

• Generate positive outcomes for people and the planet.
• Achieve competitive or superior financial returns.
• Consider all stakeholders (workers, customers, suppliers, communities, environment).

A leading example is the B Impact Assessment by B Lab:

• ~200 questions assessing governance, workers, community, environment, and customers.
• Companies that meet the threshold and verification become Certified B Corporations (B Corps).
• B Corps are legally required to consider the impact of their decisions on all stakeholders.

Here, sustainability is integrated into the operations and governance of the company (its internal impact), not just as a risk filter.

4. Impact investing (Article 9, solution-oriented)

Under the EU Sustainable Finance Disclosure Regulation (SFDR):

• Article 8 products: promote environmental and/or social characteristics (typical for responsible and many sustainable strategies).
• Article 9 products: have sustainable investment as their explicit objective and often use a reference benchmark aligned with that objective.

Impact investing aligns with Article 9:

• Impact is intentional, not incidental.
• The core product or service directly addresses a social or environmental problem.
• Impact is measurable and tracked over time.

A useful distinction:

• Internal impact: how the company runs itself (ESG performance, stakeholder policies, footprint).
• External impact: the effect of the company’s product or service on the world (e.g. emissions avoided, health outcomes improved, people reached).

Impact investing is primarily about external, solution-oriented impact being central to the business model.

5. How AENU defines impact

Within impact investing, different funds apply different lenses and thresholds. AENU defines impact through quantitative thresholds and qualitative guidelines.

5.1 AENU’s impact thresholds

AENU invests only in technologies that have the potential at scale to:

• Avoid or capture ≥ 100 Mt CO₂, or
• Reach ≥ 10 million people with significant outcome changes for primary stakeholders.

This ensures focus on large, systemic problems and solutions with meaningful scale.

5.2 AENU’s six impact guidelines

To assess whether a startup meets these thresholds, AENU uses six guidelines:

1. Intentionality – Impact is a core objective of the company and its leadership, not a by-product.
2. Impact logic – A clear, evidence-based theory of change links the product/service to the desired outcomes.
3. Depth and Breadth – The solution meaningfully improves outcomes (depth) and can reach large numbers of people or large emission volumes (breadth).
4. Interlock – Impact is structurally tied to the business model (growth of the company increases impact).
5. Additionality – The solution would likely not exist, or not at the same speed/scale, without this company and this capital.
6. Impact Measurement – The company can track, report, and manage its impact with relevant metrics.

6. Examples AENU would not consider impact-aligned

These examples illustrate where solutions may be sustainable or ESG-improving, but do not meet AENU’s impact logic, depth/breadth, or transformation criteria.

1. Decarbonizing oil refineries and chemical plants

• A technology that reduces emissions in high-emitting industries.
• AENU views this as “Reform vs. Transform”: it cleans up existing fossil-based systems rather than accelerating a transition away from them.
• Fails AENU’s Impact Logic guideline, which prioritizes transformative over incremental solutions.

1. Sustainable fishing lures

• More sustainable equipment for an industry (fishing) that AENU believes should be structurally reduced in favor of alternative, non-animal proteins.
• Again, this improves an existing system rather than enabling a fundamental shift.

1. Inductive liquid heater kettles

• Reduce energy waste and non-recyclable electronic/plastic waste.
• However, the problem size is too small: standard kettles represent a minor share of household energy use.
• Fails AENU’s Depth and Breadth guideline; the potential impact is not large enough.

These cases may be positive or “less bad,” but they do not meet AENU’s bar for transformative, large-scale impact.

7. Why impact investing matters now

Impact startups are rapidly gaining traction:

• In 2021, impact startups raised a record €39B in venture funding, up from €16B in 2020.
• The opportunity set is expanding across climate tech, health, education, food systems, and more.

To make impact investing the new normal, the ecosystem needs:

• More technological innovation targeting large, systemic problems.
• More impact-focused investors with clear thresholds and frameworks.
• Robust measurement and transparency to avoid greenwashing and align capital with real-world outcomes.

Impact investing, as AENU practices it, is not just about doing less harm or complying with ESG. It is about funding solutions that can reshape systems at scale—with impact and financial performance as co-equal objectives.