1. The distinction between ESG, sustainability, and impact
ESG. Sustainability. Impact. Three concepts often used interchangeably but rarely understood in their full complexity. They are complementary but distinct forms of investing. While headlines now proclaim that ‘ESG is dying’ (is it really?), the reality is more nuanced: ESG has matured, sustainability is becoming mainstream strategy, and impact is now emerging as a distinct investment strategy and asset class. This is a clear opportunity, but one that requires thorough analysis - not least in terms of measuring outcomes.
ESG began as a niche consideration but is now a fundamental part of how investors assess risk and how companies operate. This transition has been shaped (among other things) by regulatory shifts, most notably the EU’s Corporate Sustainability Reporting Directive, the Omnibus Regulation, and the Corporate Sustainability Due Diligence Directive. Together, these frameworks have set new baselines for corporate disclosure and accountability with ESG now woven into core business functions.
Sustainability goes further than this. It is broader, more strategic, and something that EU regulation has sought to define through the likes of the EU Taxonomy. But, beyond regulatory definitions, sustainability represents a strategic orientation towards long-term value creation and resilience. It requires investee companies to consider not only how they contribute to a more sustainable world (by innovating in what they sell, or how they produce the service and/or product), but also how they will remain competitive in a future where sustainability is the default expectation across markets and industries.
With ESG integration now ‘business as usual’, at least in Europe, and sustainability becoming embedded in corporate strategy, investors are looking for the next opportunity. We see that opportunity lying in impact investing: a distinct asset class where investments are made with the intention to generate positive, measurable social and environmental impact alongside a financial return (GIIN, 2025). This shift is being driven by changing investor expectations and new patterns of capital allocation as the next generation of wealth owners and stakeholders demand outcomes that go beyond compliance.
2. Gen Z driving redefining investor priorities
We are finally witnessing what headlines have promised for the past decade: investor behaviour is undergoing a generational transformation. According to the FPA, Millennials and Gen Z, poised to inherit USD 73 trillion in assets by 2035, are gaining a stronger voice at the decision-making table (FPA, 2024). They expect investment strategies to deliver measurable impact alongside financial returns, emphasising transparency, ethical practices, and tangible societal value. As one Holtara client recently put it, they want to “return to the planet what previous generations took to build our net worth.” This sentiment is widespread: according to Morgan Stanley, 80% of Gen Z and Millennials report plans to increase sustainable investment allocations, reflecting a fundamental shift in investor expectations (Morgan Stanley, 2025).
Stakeholder pressure is also mounting as employees, communities, and customers actively influence how capital is deployed. No longer passive observers, these ‘audiences’ are participants in shaping corporate responsibility. At the same time, new forms of capital flow linked to impact investing are gaining traction: blended finance structures, catalytic capital, and outcomes-based financing are emerging to mobilise funding at scale, especially in areas where traditional financing has fallen short.
3. Impact investing as a natural response
Against this backdrop of shifting investor priorities, impact investing has emerged as the natural next step beyond ESG and sustainability. According to the Global Impact Investing Network, impact investing is now valued at approximately USD $1.6 trillion worldwide, growing at 21% CAGR since 2019 (GIIN, 2024).
Yet, even as capital pools expand, the world faces pressing environmental and social challenges that stretch the planet’s safe operating limits - its planetary boundaries (Stockholm University, 2025) climate change, biodiversity loss, freshwater scarcity, and other critical thresholds highlight the scale of action required. What’s more, the United Nations Sustainable Development Goals face USD $4 trillion annual financing gap, underscoring the urgency of directing capital toward solutions that safeguard the planet and advance sustainable growth (United Nations, 2024).
In response, more targeted thematic impact strategies are evolving, marking a clear shift from generic funds of recent years. At Holtara, we are seeing new thematic impact funds emerging around areas such as climate resilience, regenerative agriculture, inclusive healthcare, and affordable housing - each designed to create measurable impact while addressing critical global priorities.
Commenting on the growing movement to impact investing, our Head of Impact, Maria Merry Del Val, says:
“As ESG becomes a regulatory and operational baseline, impact investing represents the next long-term investment opportunity. The new generation of investors are moving toward purpose-led capital deployment where intentionality, measurable outcomes, and accountability define success.
We see this shift as more than a trend: it is a structural realignment in how markets generate value. In a post-regulation era, market leaders will be those who embrace this transition, proving that finance can be both profitable and purposeful.”
Our services
To help clients navigate these changes, we support the full impact investment lifecycle, from strategy formation to improving outcomes at exit. By doing so, we enable companies and investors to move beyond regulatory box-ticking and deliver genuine, measurable impact. Keen to learn more about impact investing? Look out for our next blog post and in the meantime, please reach out to our Impact team in London, Amsterdam, Madrid, and New York.
References
- FPA (2024). Adapt or Die: Serving the Next Generation of Clients 2024. Available at: Retrieved from https://www.financialplanningassociation.org/learning/publications/journal/APR24-adapt-or-die-serving-next-generation-clients-OPEN
- GIIN (2024). Sizing the Impact Investing Market 2024. Available at: Retrieved from https://s3.amazonaws.com/giin-web-assets/giin/assets/publication/giin-sizingtheimpactinvestingmarket-2024.pdf
- GIIN (2025). What you need to know about impact investing 2025. Available at: Retrieved from https://thegiin.org/publication/post/about-impact-investing/
- Morgan Stanley (2025). Sustainable Signals Individual Investors 2025. Available at: Retrieved from
www.morganstanley.com - Stockholm Resilience Centre. Planetary Boundaries. Available at: https://www.stockholmresilience.org/research/planetary-boundaries.html
- United Nations (2024). The Sustainable Development Goals Report 2024. Available at: Retrieved from https://unstats.un.org/sdgs/report/2024/The-Sustainable-Development-Goals-Report-2024.pdf
