Impact investments are changing the rules of the game for German SMEs. Venture capital providers (VCs) are increasingly evaluating companies not only based on financial metrics, but also on their social and environmental contribution. This has far-reaching consequences:
VCs are thus not only driving innovation, but also demanding a clear focus on impact and transparency from SMEs. Those who meet these requirements secure not only investments, but also long-term competitiveness.
The way venture capital providers (VCs) evaluate small and medium-sized enterprises (SMEs) has changed significantly in recent years. Instead of looking exclusively at revenue growth and market share, ESG criteria (Environment, Social and Governance) and climate impacts are now in focus. This shift forces German SMEs to better understand the new standards for evaluation by investors.
Selecting an appropriate ESG framework is a crucial step, as there are over 600 such systems worldwide. VCs prefer frameworks that both meet regulatory requirements and provide meaningful data.
However, the integration of ESG criteria also carries risks. An example: The asset management arm of Deutsche Bank, DWS, was fined $27 million by the US Securities and Exchange Commission SEC in 2023 for overstating the company's ESG integration.
Some VCs have focused on specific sectors and business models that address environmental and climate challenges. Examples include:
Interestingly, the share of financing for natural environment solutions has declined from 12.6% of total climate technology investments in 2020 to 4.7% in 2024. At the same time, data-driven innovations are gaining importance – such as IoT-based energy management systems, AI-supported optimization algorithms or blockchain solutions for tracking emissions.
The evaluation criteria of traditional VCs differ fundamentally from those applied by impact-oriented investors. The following table illustrates the differences:
| Criterion | Traditional VCs | Impact-Oriented VCs |
|---|---|---|
| Primary Goal | Maximizing financial returns (IRR) | Combination of financial returns and measurable social/environmental benefit |
| Team Evaluation | Experience, skills, track record | Credibility and genuine motivation to solve social problems |
| Market Analysis | Market size, growth rate, competitive position | Relevance of social problem, scalability of solution |
| Scalability | Revenue and profit potential | Maximizing social impact with sustainable financing |
| Risk Assessment | Financial and market risks | ESG, reputational and regulatory climate risks |
| Success Measurement | ROI, EBITDA, market share | Impact metrics, contribution to UN SDGs, CO₂ reduction |
The impact investment market is growing rapidly: There are now 1,340 organizations with assets under management of $502 billion. By 2022, this sector has grown to over $1 trillion. Impact-oriented VCs consciously accept lower financial returns to achieve greater social and environmental change. This opens up new financing opportunities for German SMEs, particularly in areas such as circular economy, social innovation or educational technology.
As Page One Formula aptly describes: "Venture Capital is your catalyst for innovation and growth, providing the crucial resources that early-stage companies need to bring transformative ideas to market".
For German SMEs, it is crucial to adapt their strategies to these new evaluation standards in order to meet investor expectations and remain competitive in the long term.
The new ESG regulations of the EU and Germany are fundamentally changing the rules of the game for SME capital raising. Those who do not meet the new standards risk losing access to capital and market opportunities. Below, we take a closer look at the central regulations and their impact on SMEs.
With the introduction of CSRD and CSDDD, companies face the task of documenting their sustainability impacts much more comprehensively. The Corporate Sustainability Reporting Directive (CSRD) expands reporting obligations and increases the number of affected companies in Germany from 550 to 15,000. It replaces the previous Non-Financial Reporting Directive (NFRD) and introduces the so-called double materiality approach.
The Corporate Sustainability Due Diligence Directive (CSDDD) brings mandatory due diligence obligations in human rights and environmental areas. In addition, the EU Taxonomy Regulation defines which economic activities are considered environmentally sustainable.
The Sustainable Finance Disclosure Regulation (SFDR) also plays an important role: It requires financial market participants to disclose ESG risks and opportunities of their investment products. Already in 2021, more than 40% of acquisition financing in Europe contained ESG criteria. In Germany, the Supply Chain Due Diligence Act also tightens requirements for companies.
Another milestone: On July 30, 2025, the European Commission adopted a recommendation on voluntary sustainability reporting specifically for SMEs. At the same time, the Omnibus I simplification package proposed limiting mandatory reporting under CSRD to large companies with more than 1,000 employees.
Despite clear requirements, many SMEs struggle with implementation. The biggest challenges include financial constraints, lack of expertise, insufficient ESG data, and a lack of clear incentives. While investment funds with assets under management of over $40 trillion incorporate ESG criteria into their decisions, many small and medium-sized enterprises lack the necessary resources to build appropriate reporting systems.
Another problem: internal resistance. Many mid-sized companies underestimate how essential ESG compliance has now become for business success. Companies with weak ESG ratings are increasingly excluded from supply chains, as business partners require ESG assessments from their suppliers before contract conclusion.
To meet the new requirements, SMEs should first define relevant KPIs, establish an ESG reporting team, and implement effective data management. The first step? Use existing data: energy consumption, employee satisfaction, effects of remote work, and ethical standards with suppliers often provide a good starting point.
The EU Platform on Sustainable Finance proposes a special standard for SMEs that should facilitate access to green financing. This standard is based on the climate objectives of the EU Taxonomy but takes into account the specific circumstances of smaller companies.
Regular ESG audits and reports help ensure compliance with regulations. It is crucial to focus on the ESG topics that are relevant to the company and its stakeholders – this keeps the effort manageable.
A look at Sweden shows how successful this approach can be: 84% of SMEs see sustainability as a competitive advantage, and one-third of all public procurement contracts now contain ESG criteria. Companies that consistently implement ESG standards not only benefit in terms of compliance but also improve their market position. They secure stronger supply chain relationships, lower financing costs, and more effective risk management.
For SMEs to meet the new investment standards, they must align their business models more strongly with impact. This transformation requires structured approaches and suitable tools. Especially for SMEs looking to attract venture capital, it is essential to professionalize their impact measurement and firmly integrate it into their processes.
For SMEs, this specifically means conducting life cycle analyses (LCA), developing impact models, and using scenario analyses in strategic decisions.
A central step is analyzing the carbon footprint across all three scopes. While British SMEs emit an average of 15 tons of CO₂ per year (1-6 tons per employee), the EU average is 75 tons. This baseline data creates the foundation for informed decisions.
Frameworks like Lean Data, IRIS+, or the B Impact Assessment help SMEs integrate impact measurements efficiently and practically into their operations. They simplify complex processes and make them manageable.
Practical examples show how successful such approaches can be: Primal Soles from Amsterdam develops fully recyclable shoe accessories that bind up to 8.2 kilograms of CO₂ per square meter – with negative CO₂ emissions. Traceless Materials from Hamburg produces biodegradable materials from agricultural waste that cause up to 95% fewer greenhouse gases – equivalent to savings of 2.59 tons of CO₂ equivalent per ton of material. Building on such successes, systematic ESG tracking enables convincing investors.
ESG performance is a decisive factor: two-thirds of investors consider it in their decisions, and over three-quarters of customers prefer companies that actively support ESG issues. Transparency plays a key role here.
SMEs should define their ESG priorities based on requirements from their customers, investors, and regulatory authorities. This includes systematically collecting relevant data – such as CO₂ emissions or demographic indicators – and setting SMART goals to make progress measurable. Interviews with key stakeholders often provide valuable insights.
A convincing ESG report should cover environmental, social, and governance topics, use clear language, present progress measurably, and be regularly updated. First steps could include tracking energy consumption or creating a simple social responsibility policy.
| Advantage | With ESG Reporting | Without ESG Reporting |
|---|---|---|
| Access to contracts | ✔ Yes | ✘ Often disqualified |
| Investor interest | ✔ Attracted | ✘ Overlooked |
| Cost savings | ✔ Tracked | ✘ Missed opportunities |
| Brand reputation | ✔ Strengthened | ✘ At risk |
| Employee engagement | ✔ Higher | ✘ Lower retention |
| Risk management | ✔ Present | ✘ Exposed |
To successfully implement these processes, SMEs often rely on external expertise.
The complex ESG requirements pose challenges for many SMEs: 63% of decision-makers feel unprepared, and 72% doubt the reliability of their ESG data.
Specialized consultancies like Fiegenbaum Solutions can help here. They offer support in developing ESG strategies, impact modeling, and risk management. Their services include life cycle analyses, scenario analyses for startups, as well as climate risk assessment and resilience planning.
Companies that consistently implement ESG standards benefit significantly: they achieve on average 20% higher valuations, 55% stronger employee morale, 38% greater loyalty, and 16% higher productivity.
"Impact is not just what you do. It's what you can prove. And for SMEs, proof is power." – The Impact Pulse
An example of successful support is provided by the Impact Investors Foundation. It trained Enterprise Support Organisations (ESOs) in the SCALE Framework, with impact measurement and reporting being central components. These ESOs subsequently trained 121 SMEs – selected for gender and social inclusivity – to apply the SCALE Framework as well as an impact measurement and reporting framework to transparently track and communicate their impact.
The German startup and SME landscape impressively demonstrates how impact-oriented business models can attract the interest of venture capital providers. Companies that pursue measurable social or environmental goals prove that ethical action and economic success are not mutually exclusive. Here are some examples of how a clear focus on impact has led to successful financing.
nuuEnergy has revolutionized heat pump installation with a technological solution. Through their contribution to decarbonizing the building sector, the company was able to secure investments from High-Tech Gründerfonds (HTGF) and Vireo Ventures.
Lumoview Building Analytics uses digital tools to analyze buildings and reduce CO₂ emissions. As part of the IBB Ventures portfolio, the company shows how data analysis and climate protection can be profitably combined.
In the energy sector, Ostrom has convinced with fair, intelligent and sustainable energy solutions. The company relies entirely on renewable energy and received support from Übermorgen Ventures. Green Fusion, a provider of a cloud-based energy manager for controlling heat, electricity and e-mobility, also won investments from Übermorgen Ventures as well as from kopa ventures.
C1 Green Chemicals, a company from the Planet A Ventures portfolio, develops climate-friendly chemical production processes – including green methanol – using computer simulations. Tomorrow, a mobile banking solution with sustainability focus, and Enter, a provider of CO₂ reduction solutions for homeowners, received financing from kopa ventures and Target Global respectively.
EPYR, which converts renewable energy into high-temperature heat, is among the portfolio companies of AENU. trawa, a provider of renewable electricity for companies, was also able to win AENU as well as Magnetic Capital as investors. These examples illustrate that concrete impact strategies not only create social value but also convince investors.
The presented companies rely on proven frameworks such as the Impact Management Norms and the GIIN's IRIS+ System. These tools help define clear KPIs, make impact measurable, and ensure regular data collection.
A central success factor is the consistent alignment of the business model with social or environmental goals. Vytal drives the transformation of the packaging industry toward a circular economy, while Faircado pursues the goal of making second-hand products the first choice for consumers.
Through continuous KPI analyses, these companies manage to convince investors of the controllability and measurability of their impact. German SMEs thus demonstrate that impact-oriented business models are not only socially relevant but also financially attractive.
After examining current evaluation and implementation strategies, it becomes clear: the future of impact investing in the VC market builds on existing trends and promises exciting developments.
The European impact investing market, with an estimated volume of 190 billion euros, impressively shows the potential that impact-oriented investments bring. This corresponds to 2.5% of the total 7.6 trillion euros available in Europe for this area.
Decarbonization as a driver in the German VC market: Funds like the World Fund in Berlin specifically target startups active in areas such as energy, food, manufacturing, buildings, and mobility. Planet A, also from Berlin, is expanding its focus on green-tech startups. This alignment underscores that 46% of impact investors will pursue climate protection as their primary goal within the UN Sustainability Goals.
The increasing fragmentation of investments and longer holding periods promote fund-of-funds activity. At the same time, VC funds increasingly rely on dual exit strategies that include both IPOs and mergers and acquisitions to create flexible exit opportunities.
Corporate VC gains importance: DAX companies are increasingly developing sector-specific VC programs to strengthen their innovation capacity and specifically invest in forward-looking startups.
A crucial success factor will be the measurability of impact. Already 88% of organizations clearly demonstrate their impact. Additionally, 62% of impact investments achieve results that would not have been possible without these investments. This transparency and traceability will become increasingly important in the future.
This presents a great opportunity for small and medium-sized enterprises (SMEs): those who react early to these trends can benefit from structural changes. The Federal Ministry for Economic Affairs and Climate Action puts it aptly:
"German SMEs are known for delivering both continuity and dynamism. This means they have what it takes to successfully master the upcoming challenges and structural changes."
Companies that manage to combine measurable impact with economic success will take a pioneering role in this new era of the VC market. Impact is no longer a short-lived trend – it is becoming a permanent fixture in the German venture capital sector.
Small and medium-sized enterprises (SMEs) in Germany have the opportunity to become more attractive to venture capital providers by firmly integrating ESG criteria (Environment, Social, Governance) into their business strategies. This means, among other things, introducing sustainable processes, advancing climate protection measures, and complying with legal reporting requirements such as the CSRD (Corporate Sustainability Reporting Directive).
Another important approach is developing projects that bring both environmental and social benefits. Impact investors increasingly value concrete, measurable results in these areas. Government funding programs and sustainability initiatives can provide valuable support to finance the transformation while simultaneously strengthening market position.
When SMEs clearly and transparently communicate their progress in sustainability, they can not only convince investors but also secure a long-term competitive advantage.
German SMEs often face significant challenges when it comes to integrating ESG criteria and complying with regulatory requirements. Issues such as high costs, limited human resources, and lack of expertise make implementation demanding. Another obstacle is often the collection and evaluation of relevant data that is essential for effective ESG data management.
To master these difficulties, it makes sense to develop a clear strategy early and intensively engage with legal requirements. External consulting can provide valuable support to close specific gaps. At the same time, targeted training can help expand know-how within the company. Another important lever is digital tools and frameworks that significantly simplify data collection and analysis.
Such a forward-looking approach pays off: it not only minimizes the risk of penalties but also creates new opportunities for sustainable growth and stronger market positioning. This way, ESG becomes not just an obligation but also an opportunity.
SMEs that focus on impact-oriented business models have significantly better chances of obtaining capital today. The reason? Impact investors and sustainability-focused financing are gaining increasing importance. Such models meet the growing expectations for sustainability and social responsibility – an aspect that makes them particularly interesting for investors.
Furthermore, these approaches offer exciting market opportunities: more and more customers and business partners prefer environmentally friendly and responsibly produced products. Companies that integrate ESG criteria into their strategies can thus secure a clear competitive advantage and strengthen their market position in the long term.