On the fund side, Morningstar reports the combined assets of SFDR Article 8 and Article 9 funds are worth more than €5 trillion, with Article 8 funds accounting for 53% of the market (ESG Investor, 2023). In simpler terms, there is an increase in the number of impact companies being started, and more funds with impact as part of their investment thesis are being raised. The reason for this success can be debated, but it is clear that impact is a prominent focus.
Fortunately, this focus on impact is crucial as it aligns with the need to achieve the Sustainable Development Goals (SDGs), and capital plays a fundamental role in reaching those goals. Investing in impact companies benefits the planet and the people and is also suitable for business. From a business perspective, investing in solutions with a Total Addressable Market (TAM) consisting of everyone on earth is a compelling opportunity. It is in the best interest of the global population to address the challenges we face, such as carbon emission reduction.
At PSV, we are privileged to work closely with DTU (named best technical university in Europe in 2023 by QS World University Rankings 2025). Through this collaboration, we have observed a pattern among the brilliant students taking the MSc in Technology Entrepreneurship. During a 2023 lecture on the importance of integrating ESG early on, it became clear that all the startup ideas presented were impact startups. We’re talking 100%. This aligns well with the data and indicates that the founders of tomorrow are inclined to start impact companies, which bodes well for the future.
However, there is a concern about the notion of viewing ESG and impact as two ends of a spectrum. It is not simply a matter of a company’s “sustainability focus”. ESG and impact are distinct concepts. A company can be an impact company but perform poorly on ESG metrics (as exemplified by the Tesla example). Conversely, a company may not have a direct relationship between a positive impact on the SDGs and revenue. However, it can still incorporate ESG into its processes in a best-in-class manner.
This distinction becomes increasingly important as more capital flows into impact startups. Founders and early-stage investors, like ourselves, must ensure that our focus on ESG remains strong because a company is already doing much for the planet or people. On the contrary, we should double down on integrating ESG into our startup processes and provide support as investors.
There is a crucial reason for this: We genuinely need these companies to survive and, ideally, achieve significant success - hit it big!
The reason behind this is apparent. While the debate on whether strong ESG performance enhances overall company performance can continue indefinitely, one thing is evident: ESG is likely to enhance value. Risk mitigation, employee attraction and retention, building inclusive cultures, regulatory compliance, and governance are just a few aspects that can be positively impacted by enhanced ESG work (McKinsey, 2019). Interestingly, the focus of the discussion often centres around these aspects, yet there are voices constantly demanding “Proof that ESG directly links to out-performance”. Relax, it does. Just wait and see.
Rather than debating the direct link between ESG and outperformance, the discussion should focus on how we can best support impact companies on their ESG journey. It may require adjusting our approach because, fundamentally, building an e-commerce SaaS platform is different from developing, let’s say, a deep-tech green hydrogen solution. As investors, we need to recognise this and have a broader perspective to facilitate the scaling of companies. For example, environmental considerations usually involve reducing carbon footprint. However, when a deep tech company is in its early stages, there may be temporary increases in emissions due to developing and building hardware. We need to take the long-term perspective while continuously evaluating ESG performance and providing support where needed.
PSV doesn’t suggest prioritising ESG over investing in impact companies. Instead, we emphasise the importance of recognising that ESG and impact are distinct and that the survival of these companies goes beyond financial returns. It can be a matter of life or death for people everywhere.
