Overcoming Challenges in Impact Investing: Insights from the Field

One particular challenge I often see is cutting through those well-crafted “impact narratives” in order to understand and arrive at investment-grade decision making. We have evaluated biofuels, climate tech, and social impact companies where the pitch deck sounds net-positive with low carbon intensity (CI) footprint. But the underlying data like carbon accounting (Scope 1, 2, and 3 emissions), feedstock traceability, additionality claims, or unit-level economics didn’t stand up to scrutiny.

I address this by treating impact due diligence exactly like financial due diligence — using a similar process with an expectation of verifiable evidence. For example, when evaluating a climate-tech, bio-based materials, or e-fuels company, I have started asking for lifecycle data that can be tied back to a methodology (GHG Protocol, TCFD, EPA/LCFS pathways using GREET 3.0) and not just modeled optimism. When assessing “sustainability premium,” I look for actual contracted offtake (binding) and no longer base my decision on future intent. Instead of accepting a company’s impact model, I directly build a parallel one using my own assumptions to see where the numbers break. These strategies have ultimately improved conviction on what’s investable and what still needs time to evolve.

My advice: impact integrity unfortunately cannot be achieved by trusting just the founder’s sincerity. You have to interrogate the technology for its readiness levels (TRL) and data with the same discipline you use for valuation, cash flows, and competitive dynamics. Investors that can combine financial discipline with scientific and policy literacy (IRA, IIJA, LCFS) are likely to make better decisions, avoid speculative deals, and ultimately back companies that deliver both returns and real-world outcomes that inch us closer to a net-zero world.

Try not to outsource your judgment to the founder’s pitch or storytelling. Sit with the data long enough to understand where the story bends. The founders who truly have something substantial will welcome those questions. If your process demands evidence early and founders rise to that bar, the quality of opportunities you see will improve dramatically.

One repeating issue I always bump into is the verification behind whether the investment actually delivers the social and environmental benefits it claims to, in addition to the financial benefits. Often, many investments seem to be greenwashing traps, questioning the integrity of the advice. The issue is growing exponentially and scrutiny is growing, however it seems regulation is lagging on this.

I have noticed over recent years that standards are evolving to mitigate the misleading claims, especially from my multi-family office & other philanthropists. This has improved the proof given that real funding is driving purposeful change.

Over time, the screening has changed drastically in the industry. A prime example: I have seen that one impact fund quantifies carbon savings using what they call the Greenhouse Gas Protocol GHG, which reports tons avoided per million invested, whilst another screening relies on self-reported data. Essentially we are comparing apples to oranges and the credibility is skewed.

To further complicate screening, data scarcity affects this, especially in emerging markets or early-stage companies, often seen in sustainable finance. Quite often tracking systems are either not present or massively underdeveloped.

I have seen this in the past with portfolios in the billions. Cases that seem to recur the most are below.

A client with 7 figures wishes to invest. As part of this, they want an assurance of real environmental impact. Companies will initially struggle due to inconsistent screening. To address this, the MD or Director will adopt standardized frameworks like IRIS+ from GIIN network and may try to align the investment with the SDG (Sustainable Development Goal) framework.

This approach provides the most peace of mind for a client. In today’s world, simple standardized top-level screening is not sufficient.

From a business perspective, it will also build trust in the industry. This is paramount in an industry where “the majority of investors prioritize verified screened ESG investments” (PWC Global Survey, 2023).

Whilst screening does provide overall client satisfaction and suitability, it does not come without hurdles. Enhanced screening, like above, often increases internal due diligence by up to 20%.

One of the hardest things I’ve encountered while working in impact investing is telling whether a project’s good intentions are actually translating to real results. Many organizations use greenwashing-type terminology, saying all the right things about sustainability — but if you dig a bit deeper, the numbers just don’t hold up. It’s easy to get caught up in a project’s noble mission, but that should never be enough on its own — you need proof that it actually makes a difference.

To be honest, I started treating impact verification with the same level of critical analysis I apply to financial due diligence. I want to see clear guidelines on how a project intends to report its progress, checks and balances in place to keep things independent, and things that can be measured, tracked, and proven over time. If a project can’t even show me how to keep tabs on its own progress, that’s a warning sign.

My top piece of advice is, simply: stop getting sold on a story alone. Ask the project to show you how they define the impact they’re chasing, how they’ll measure whether they’re getting it right, and who is reviewing the evidence to make sure it’s genuine.

One of the biggest challenges I faced in sustainable finance was measuring and verifying the real-world impact of an investment.

While financial returns can be tracked quantitatively, social or environmental outcomes are often harder to quantify, especially when data is scarce, inconsistent, or delayed.

The difficulty stems from a few key issues that make the data unreliable:

• Scarcity and Inconsistency: Reliable data from portfolio companies, especially in emerging markets, is often scarce, inconsistent, or significantly delayed.

• The Attribution Problem: It’s hard to isolate whether our specific investment caused a change, or if it was due to broader market forces or government policy.

• Defining “Success”: Is a 10% reduction in carbon emissions a success if the competitor achieved 20%? We were struggling with subjective goals.

To tackle this, I implemented a robust impact measurement framework that combined qualitative and quantitative metrics. For instance, we tracked KPIs such as emissions reductions, community engagement levels, or access to essential services, and supplemented them with independent third-party audits to ensure credibility. Additionally, we set realistic milestones and maintained transparent reporting with investors, which helped align expectations and build trust.

Advice for Others:

• Define impact upfront: Be specific about what success looks like, both socially and financially.

• Use standardized metrics: Leverage frameworks like IRIS+ (Impact Reporting and Investment Standards), GRI (Global Reporting Initiative), or SASB (Sustainability Accounting Standards Board) to ensure comparability.

• Be transparent: Share challenges and setbacks openly; credibility matters as much as results.

• Iterate constantly: Impact measurement is an evolving process; refine your approach as new data or methodologies become available.