Should impact have a veto in investment decisions?

As the impact investing field grows, having reached $1.5 Trillion in 2024, new inspiring and promising impact investing projects and opportunities emerge everyday. All seem to be impactful, sustainable and able to change the world. However, after almost 20 years since the concept of impact investing was developed, we cannot state for sure whether these projects are contributing to improving the biggest social and environmental challenges we are facing.

Most people will argue that we need more capital allocated to impact investing, and only with bigger amounts can we really make a difference and create a positive impact. This is of course logical, and most theories of change I have seen during these years reflect that. However, bringing more capital doesn’t necessarily mean more impact. It is more complex than that. 

Allocating more capital towards impact funds or enterprises can only result in a positive impact if these organizations incorporate impact as part of their decision-making process. This seems quite obvious and in impact investing almost everyone says they integrate impact into their investment decisions. But the reality is far less convincing.

In conversations with GPs, fund managers, and other asset owners over the years, I have asked a basic question: “Have you ever walked away from an investment because the impact wasn’t strong enough, even if the financials were solid?” Very few say yes. In fact, most can’t point to a single case where impact was the deciding factor. Even in funds with a Head of Impact or ESG, that person often doesn’t have a vote (let alone a veto!) in investment decisions. Outcome targets are rarely set before the investment is made, which means success becomes a loose, retrospective concept. If you never define what you’re aiming for, anything can look like a win.

We can’t keep saying that impact is integrated when it has no real power or influence in the final decision. If we want impact to drive better social and/or environmental outcomes then it has to be part of the actual decision-making structure. That means changing who gets to decide, how performance is measured, and what are the incentives for the team to deliver.

What it looks like when impact has power

Thankfully, there are organizations already trying to do this differently. They might not be perfect and there’s always room for improvement, but they offer elements of what it looks like when impact is just not just part of a deck but it is actively driving decisions.

At Rubio VC, impact is treated with the same weight as financial performance, across the entire process. Deal teams are responsible for both — and expected to present and argue for both. Impact isn’t just the responsibility of one person; it’s part of everyone’s role, while they have strong support from people with deeper expertise in impact when needed like Willemijn Verloop, founding partner of Rubio and an expert in impact. There’s also an independent impact advisory board that validates all impact indicators and targets, and impact is discussed at all at board meetings. Carried interest is linked to both impact and financial returns and the first hurdle is actually impact, so if there is no impact there is no reward for the team at all. This creates real accountability and shared ownership.

Catalyst Fund takes a similarly intentional approach. Impact starts at the first screening – every opportunity is evaluated based on alignment with their impact criteria, including founder diversity and the potential for climate resilience at scale. During due diligence, they define the expected outcomes and impact metrics. Impact is also distributed across team members with all partners and their chief investment officer bringing deep impact expertise. The result is everyone in the team sees impact as a core value driver — not an add-on. Their Impact Venture Partner, Malika Anand, brings deep subject-matter expertise to support the fund from sourcing to exit as well as portfolio companies. The process is detailed and grounded, and it shows.

Then there’s Beneficial Returns, a fund that was created for impact from day one. They’ve made the deliberate choice to accept lower financial returns so they don’t overburden the entrepreneurs they support and truly focus on impact. They also offer an impact bonus which is incorporated into their loan documents and waives a portion of the final loan payment (or sometimes the entire last payment) if the borrower exceeds a pre-established impact metric. In addition, Beneficial Returns reinvest most of their profits into the ecosystem. More importantly, they build real relationships with the entrepreneurs – not just financial ones – and are constantly learning and sharing with others. Their model is based on trust, humility, and long-term partnership.

Each of these organizations approaches the challenge differently. But they all recognize the same thing: impact won’t happen unless you build structures where impact has a saying. 

So why doesn’t this happen more often?

In most investment processes, impact still doesn’t have decision-making power. It is often analysed during due diligence, but rarely considered as a “go/no-go” factor. Heads of Impact are usually advisors, not decision-makers. Targets (if they exist) tend to focus on outputs rather than outcomes, and are still not based on evidence or market data. And reporting often focuses on what is easy to measure, not necessarily what is most relevant. 

The result? Impact becomes more of a narrative than a commitment. It is easy to claim, hard to verify, and rarely affects the final call. If we want better outcomes (and thus, better impact investing), we need to build better systems. That means rethinking how decisions are truly made, how success is defined, and how people are held accountable. 

Three things that need to change

If we want impact to drive decisions, there are three concrete shifts that can make a difference.

1. Give impact a vote – Whether it is a formal vote or a clear veto mechanism, impact needs to have real decision-making authority. In many funds, the Impact team is brought in late, or their input is treated as advice (sometimes being only optional). That needs to change. 
2. Define outcome goals upfront – If you don’t define success before investing, it becomes impossible to evaluate impact later. In addition, successful outcomes are more than beneficiaries supported or jobs created. We need to set clear goals and targets, and consistently measure outcomes, learn and adapt. 
3. Align incentives – If compensation and career progression are based only on financial performance, that’s what people will focus on. Organizations need to evaluate performance and success based on impact results, not just financial returns. A good analysis of these mechanisms, how to implement them and concrete examples is the Impact Linked Compensation Project. 

Time to move forward

Impact investing has made a lot of progress in the past decade. But when it comes to governance and decision-making, there is still a lot to do. If we keep treating impact as an advisory function (or a marketing exercise) we will never achieve the outcomes we say we want. The good news is: we have examples to learn from. Funds like Rubio VC, Catalyst Fund, and Beneficial Returns are showing what it looks like to put impact at the center of decisions. They have made it part of the structure and the processes – not just the story. If impact can’t say no, we can’t expect impact investing to drive real meaningful and lasting positive change.

Ana Pimenta is chief impact strategist at Blink CV, an Amsterdam-based family office.