Beyond ESG: Impact Investing That Generates Real-World Outcomes

ESG has become one of the most debated frameworks in institutional finance. Proponents argue it represents a necessary evolution in how capital is allocated — an acknowledgment that environmental, social, and governance factors affect long-term financial performance in ways that traditional analysis misses. Critics argue that ESG has become a compliance exercise, a marketing label applied to portfolios that have not meaningfully changed, a system that scores corporate behavior against rubrics that have only loose connections to actual planetary or social outcomes.

Both arguments have merit. And both miss the more important point, which is that the most consequential impact investments of the next decade will not be defined by ESG scores at all. They will be defined by something more specific and more demanding: measurable, verifiable, real-world outcomes. Companies like Pachama, Watershed, and Climeworks are not interesting because they score well on ESG frameworks. They are interesting because they are building the infrastructure and platforms through which trillions of dollars of capital can be directed toward verified climate and social impact at a scale that actually matters.

Understanding what separates genuinely impactful investments from ESG theater requires a framework for thinking about what "impact" means in practice — and how investors at the early stage can identify companies capable of creating it at scale.

The ESG Trap: Why Scores Don't Measure Impact

Environmental, Social, and Governance metrics were developed primarily to help institutional investors understand non-financial risks in large, publicly traded companies. A company with poor governance is more likely to suffer from corruption, mismanagement, or regulatory action. A company with serious environmental liabilities faces cleanup costs, litigation exposure, and regulatory risk. ESG, in this original sense, is a risk management tool — useful, legitimate, and genuinely relevant to long-term financial performance.

The problem is that ESG evolved into something different: a scoring system that awards points for disclosed intentions and process adoption rather than demonstrated outcomes. A company that publishes a detailed carbon reduction plan scores better than one that has actually reduced emissions but not published the documentation. A company that adopts a supplier diversity policy scores better than one that has created genuine employment opportunities in underserved communities without the formal policy structure. The scoring mechanism optimizes for disclosure quality, not impact quality.

This distinction matters enormously for early-stage investors. If our goal is to back companies that generate both strong financial returns and measurable positive impact, ESG scores are not just insufficient — they are actively misleading guides to where that impact is actually happening.

Pachama: Verification as the Missing Layer

Pachama was founded in 2018 with a thesis that the carbon offset market was fundamentally broken — not because the underlying concept of paying for forest conservation was wrong, but because the verification layer was inadequate. Projects claiming to protect carbon-sequestering forests were issuing credits based on baseline projections that were frequently inaccurate, and the monitoring systems used to verify ongoing forest health were too expensive and too infrequent to catch problems before significant credits had already been sold and retired.

Pachama's approach was to use remote sensing technology — satellite imagery, lidar data, and machine learning models trained on forest carbon dynamics — to build a continuous, automated verification layer for nature-based carbon projects. Rather than relying on annual field surveys conducted by consultants with limited data, Pachama monitors project forests continuously and flags anomalies — deforestation events, fires, disease outbreaks — within days rather than months.

The company raised $55 million in its Series B round in 2022, led by investors who recognized that the carbon market's credibility problem was fundamentally a verification and measurement problem — and that solving it would unlock trillions of dollars of investment in nature-based climate solutions that buyers currently could not trust. Major corporate clients including Microsoft, Shopify, and Boston Consulting Group have used Pachama's platform to source and verify carbon credits.

What makes Pachama a genuinely impactful company — beyond its ESG score or its sustainability branding — is that it is building the infrastructure that makes the entire voluntary carbon market more credible and more functional. Every dollar invested in Pachama is a dollar invested in making it possible for other investors to trust the outcomes they are paying for in nature-based carbon projects. That leverage effect is what outcome-oriented impact investing looks like at scale.

Watershed: Corporate Climate Accounting at Enterprise Scale

Watershed was founded in 2019 to solve a problem that sounds simple but turns out to be enormously complex: how do large companies actually measure and reduce their carbon emissions? The challenge is not conceptual — companies understand they need to measure scope 1, 2, and 3 emissions and set reduction targets. The challenge is operational. Emissions data lives in dozens of systems across complex supply chains. The methodologies for calculating emissions factors are disputed, inconsistently applied, and often outdated. The cost of the consulting engagements required to generate accurate emissions inventories was prohibitive for all but the largest companies.

Watershed built a software platform that automates emissions measurement across complex corporate supply chains, integrating with the financial and procurement systems where the underlying activity data lives and applying standardized emissions factors to generate accurate, auditable carbon inventories. The company raised a $70 million Series B in 2022 at a valuation reflecting strong customer growth among Fortune 500 companies seeking to meet regulatory disclosure requirements under evolving SEC and EU rules.

The impact thesis for Watershed is grounded in a straightforward observation: companies cannot reduce what they cannot accurately measure. The corporate sector is responsible for the majority of global greenhouse gas emissions, and the pace of corporate emissions reduction is constrained, among other things, by the difficulty and cost of accurate emissions accounting. Every company that Watershed equips with accurate, continuous emissions data becomes capable of making better reduction decisions — and of holding its own supply chain to more accountable standards.

"The gap between what companies say about their climate commitments and what they actually do is often not a question of intent. It is a question of data infrastructure. Companies cannot execute on commitments they cannot measure. Watershed is solving the measurement problem at scale."

Watershed's enterprise client list includes Stripe, Airbnb, Sweetgreen, and dozens of other high-growth companies that have made public climate commitments and need the software infrastructure to back them up with verifiable data. As regulatory requirements for emissions disclosure tighten — the SEC's climate disclosure rules, the EU's Corporate Sustainability Reporting Directive, and California's climate accountability legislation are all pushing in this direction — the market for Watershed's platform is expanding rapidly and durably.

Climeworks: Direct Air Capture and the Infrastructure Layer

No discussion of outcome-based impact investing in the climate space is complete without addressing the hardest part of the problem: what to do about the carbon dioxide already in the atmosphere. Even an immediate and complete halt to global greenhouse gas emissions would not prevent significant warming, because the carbon already emitted will continue to drive temperature increases for decades. Addressing existing atmospheric carbon requires carbon removal — and the most scalable, durable form of carbon removal currently available is direct air capture (DAC).

Climeworks, founded in 2009 and headquartered in Zurich, builds industrial-scale direct air capture plants that pull CO₂ directly from ambient air, concentrate it, and either store it permanently in geological formations or use it commercially. The company has raised over $650 million in funding — a remarkable figure for a hard technology company building industrial infrastructure — from investors including Partners Group, GIC, and a range of climate-focused institutions.

Climeworks' flagship Orca plant in Iceland, and its larger successor Mammoth plant launched in 2024, demonstrate the technical feasibility of industrial direct air capture at commercial scale. Mammoth is designed to capture up to 36,000 tonnes of CO₂ per year — a small fraction of global annual emissions, but a meaningful demonstration of what scaled DAC infrastructure could eventually achieve. Climeworks has sold forward contracts for carbon removal credits to corporate customers including Microsoft, which has committed to remove historically all of the carbon it has emitted by 2050.

The investment thesis for Climeworks is predicated on a cost curve argument that has historically proven correct for clean energy technologies: as production scales, costs drop, and as costs drop, addressable markets expand. Solar power went from $76 per watt in 1977 to less than $0.20 per watt today — a 99.7% cost reduction driven by manufacturing scale, learning curve effects, and sustained R&D investment. The DAC industry is at the very beginning of an analogous trajectory, with current costs that are high but falling, and a potential end-state cost structure that would make carbon removal economically competitive with other mitigation approaches.

Why Impact Investing Beyond ESG Requires a Different Evaluation Framework

What Pachama, Watershed, and Climeworks share — and what distinguishes them from companies that merely score well on ESG frameworks — is a specific relationship between their business model and their impact. Their revenue growth is directly tied to the scale of their real-world impact. When Pachama verifies more forest carbon projects, more high-quality credits flow into the market and more conservation finance is deployed. When Watershed onboards more enterprise clients, more corporate emissions are accurately measured and more supply chain accountability is enforced. When Climeworks builds more DAC capacity, more atmospheric carbon is durably removed.

This alignment between business model and impact — what impact investors sometimes call "impact integration" — is the defining characteristic of companies where financial investment and impact investment are genuinely the same thing. It is the opposite of ESG, where the relationship between business model and impact is at best indirect and at worst illusory.

Evaluating impact investing opportunities beyond ESG requires asking a different set of questions than traditional ESG analysis:

• Outcome specificity: Can the company define its impact in measurable, verifiable units? Tonnes of CO₂ removed, hectares of forest conserved, reduction in corporate scope 3 emissions — specific, verifiable numbers rather than general sustainability claims.
• Business model alignment: Is revenue growth directly tied to impact scale? Or is the impact a byproduct or marketing positioning layer that could be removed without affecting the core business?
• Additionality: Does the company's impact represent a genuine addition to what would have happened otherwise? Forest conservation that would have happened anyway, or corporate emissions reduction that was already underway, is not additive impact.
• Permanence and durability: Is the impact durable? Carbon credits that are retired but later reversed by deforestation events are not permanent. Geological carbon storage is. Nature-based solutions with strong monitoring infrastructure are more durable than those without.
• Scalability: Can the impact scale to a size that is actually meaningful at a civilizational level? Companies addressing problems with inherently limited scale potential may be valuable businesses but are not solving the large-scale problems that the impact investing thesis is premised on addressing.

The Role of Andela and Sama in Impact-Integrated Business Models

The impact investing opportunity beyond ESG is not limited to climate technology. In human capital and economic development, companies like Andela and Sama have built business models where social impact is the mechanism of value creation, not a marketing layer on top of it.

Andela, which has raised over $200 million in total funding including a $200 million Series E led by SoftBank, was built on the thesis that global technology talent is distributed equally around the world, but opportunity is not. By identifying and training exceptional software engineers in Africa and connecting them with global technology employers, Andela creates economic opportunity at scale in markets where it did not previously exist — and simultaneously solves a genuine talent problem for companies that cannot find enough qualified engineers in traditional hiring markets.

Sama, with over $35 million in total funding, employs workers in East Africa and South Asia to provide high-quality data annotation services for AI companies requiring labeled training data. Sama's clients include major technology companies and autonomous vehicle developers who need human judgment at scale to train machine learning models. Sama's employees earn wages significantly above local market rates, with training programs, benefits, and career development pathways that create genuine economic mobility. The impact — measured in worker income, skills development, and economic multiplier effects in low-income communities — is direct, measurable, and integrated into the core business model.

Building a Portfolio of Outcome-Oriented Impact Companies

At Plakario, our approach to impact investing is grounded in the framework described above: we seek companies where financial returns and measurable real-world outcomes are structurally aligned, not decoratively connected. This means we apply the same rigorous due diligence criteria to impact claims that we apply to market size and competitive moat analysis — because for companies where impact is structurally integrated into the business model, the scale of the impact and the scale of the financial opportunity are the same thing.

The market opportunity for outcome-oriented impact companies is large and growing. Regulatory pressure, corporate commitment pressure, and consumer preference are all driving demand for verified, measurable impact solutions. The companies building the infrastructure to deliver and verify that impact at scale — the Pachamas and Watersheds and Climeworkses — are positioned at the intersection of genuine need and genuine financial opportunity. That is where the best investments are always found.

We are skeptical of ESG as a primary investment framework — not because sustainability and governance do not matter, but because the ESG scoring system has evolved in ways that reward disclosure rather than outcomes. The next generation of impact investors will be evaluated not by the ESG scores of their portfolio companies, but by the tons of carbon removed, the hectares of forest protected, the workers lifted into sustainable economic opportunity. Those are the metrics that matter. Those are the companies we are looking to back.