Venture capital shifts as founders and investors prioritise sustainability from the start

During a rather quiet VC dinner in Berlin, a startup founder abruptly paused his pitch and looked over at the investors, asking, “How do you actually define sustainability in your portfolio strategy?” The room fell silent and, interestingly enough, there were two notebooks shut tight on the table, just sitting there. That small moment, but it seemed to carry quite a bit of weight. It really highlighted a shift happening in early-stage fundraising: now, founders are more cautious, vetting their potential backers to see if they genuinely align on environmental, social, and governance (ESG) principles, not just using a token slide for effect in their pitch decks.

According to the Law News feature that first brought this story to light, this change isn’t just surface-level. Startups that are technically solid and thinking long-term are building sustainability into their core from the very beginning, whether it’s product design, hiring, logistics, or sourcing. They’re approaching regulations as helpful frameworks rather than hurdles or constraints. And the result? Well, the article suggests that these companies tend to be leaner and more resilient, often beating their peers when markets tighten or slow down.

Supporting this idea, research from Boston Consulting Group and MIT Sloan indicates that startups driven by sustainability tend to scale more effectively. These findings back the argument that incorporating ESG factors early on cuts retrofit costs later on and helps products better fit the market. There are some concrete examples too. One mobility startup shared that their Series A backers actually asked for a forecast of their carbon costs, which ended up reshaping how they deployed their fleet and improved logistics. Meanwhile, another company cut costs by 40 percent by dropping plastic packaging after an investor challenged them on sustainability.

A small but rapidly growing group of venture firms are now crafting their entire investment strategies around this belief. The Law News article highlights players like Antler, 4WARD.VC, Breakthrough Energy Ventures, and Blue Horizon as prime examples. And the list of climate-focused investors seems to be expanding as we move toward 2025. For instance, Peony.ink mentions Energy Impact Partners , which recently closed a $1.36 billion Flagship Fund III , and TPG Rise Climate, a platform deploying capital across private equity, transition infrastructure, and projects in emerging markets like the Global South. These larger funds really show that significant amounts of capital are flowing into climate-aligned investments, pretty much backing up the thesis.

But it’s not all rosy. Not all venture capital is keeping up, and there’s still a strong emphasis on speed and quick exits, something that doesn’t always match with the long-term nature of impact investing. This tension hits harder in sectors like biotech, energy infrastructure, or advanced manufacturing, where patient capital and systems-based approaches are essential but often unattractive to traditional short-term focused VCs. A partner from a climate fund mentioned that some of their most successful portfolio companies were actually startups that had turned down conventional VC funding because they didn’t want to spend half their time translating their values into metrics. “Honestly,” the partner added, “they just didn’t want to waste time trying to fit into a box they didn’t believe in.”

That kind of feeling underpins an ongoing adjustment in how founders and investors approach each other now. Founders are increasingly asking if an investor will be more than just a check, they want partners who are operationally committed to sustainability. This means measuring and reporting on material environmental factors, tying incentives to long-term outcomes, and even providing hands-on operational support. Guidance from legal and investment firms echoes the changing expectations. Avisen Legal, for example, lists ten essentials for startups aiming to attract impact investors, things like having a committed team and clear mission alignment. Sustain.life recommends embedding sustainability into the very fabric of partnerships, including terms on board compensation, to ensure real outcomes are achieved, not just words.

This shift is already changing VC behavior in tangible ways. Some firms are updating their due diligence processes to evaluate not only team conviction but also areas like carbon footprint, circular economy practices, and governance. Others are tweaking how they communicate with limited partners to reflect longer timeframes and different KPIs , key performance indicators. From the Law News article, Antler’s ESG and Impact Report suggests that portfolios with integrated sustainability initiatives tend to hold up better during economic downturns. Practical steps include things like forecasting carbon costs or hiring practices that boost diversity, as diversity is increasingly viewed as a sign of product relevance and market insight.

Of course, there are a few caveats and contradictions worth noting. Some of the sources that praise this trend also warn about greenwashing, where funds claim to prioritize sustainability but don’t really follow through on their commitments. For example, TechCrunch and other outlets often urge founders to demand transparency and clear, specific (SMART) goals instead of vague promises. Content providers like Tribune Content Agency recommend early integration of sustainability so that costly retrofits and potential reputational hits down the line can be avoided.

For players within the UAE’s climate-technology ecosystem, these implications are pretty immediate and concrete. The energy, industrial, and logistics sectors in the region represent significant pathways for decarbonization. Entrepreneurs working on scaling climate solutions will likely benefit from partnering with investors who understand the long timelines, complex regulations, and infrastructure needs involved. Big international climate investors, such as Energy Impact Partners and TPG Rise Climate, are already active, deploying capital in areas like grid decarbonization and industrial transformation. According to Peony.ink, their activities planned for 2025 show that institutional capital continues to flow into transition-focused projects, reinforcing the trend.

All in all, the debate over whether sustainability matters is over. The real question now is: how do we make it operational and fund it effectively? Founders are no longer passive recipients, they’re actively testing their investors’ commitments just as investors scrutinize the founders. This mutual selection process is raising the standards. Companies that view sustainability as a core driver, rather than just a checkbox, are gaining clearer strategic directions, better risk management, and, increasingly, partners who understand their language.

From what industry voices are saying, it’s pretty clear, the tide has turned. For founders and funds alike, whether in the UAE or elsewhere, the new normal rewards discipline, transparency, and the willingness to weave sustainability into every aspect of their products, policies, and people.

Source: Noah Wire Services