Editors: Elisabetta Marani, J. Skyler Fernandes​

Why we evolved from investing in ESG themes to investing in industrial problems, and why the biggest positive climate outcomes may come from companies that never sell that they are solving the “climate” problem.

One of the greatest advantages of operating a venture capital fund over many years is that your investment philosophy gets tested against reality.

At VU Venture Partners, we are constantly evolving and developing our investment theses across industries. We view it as evidence that we’re learning.

Over the past seven years, one of our biggest lessons has come from the evolution of one of our vertical focused teams, a journey that started with ESG / Impact, evolved into Climate, and has now become Industrial.

The lesson can be summarized in one sentence:

The customer needs to be an actual customer, with real customer problems to solve.

Phase One: The ESG / Impact Experiment

Back in Cohort Two of Venture University, we created an ESG / Impact investment team for VU VenturePartners.

At first, it seemed like the right direction.

But over time we noticed something interesting.

The team slowly became the “everything team.”

Why?

Because every truly great startup has the potential to create enormous positive impact:

• The best healthcare companies save lives.
• The best AI companies dramatically increase productivity.
• The best education companies expand opportunity.
• The best infrastructure companies reduce waste.
• The best manufacturing companies use fewer resources.
• The best logistics companies eliminate inefficiency.

Virtually every transformative startup improves society in some meaningful way.

As investors, we also evaluate every opportunity through an ethical lens during our Partner Meetings and Investment Committee discussions.

So impact wasn’t unique to one vertical; it existed throughout the entire fund.

Without realizing it, our ESG / Impact team had become the fund’s generalist team.

More importantly, we discovered another pattern.

When evaluating companies, the team would often prioritize whether something qualified as ESG instead of asking the harder question:

Sometimes those priorities aligned.

Often they didn’t.

In many cases, companies received stronger consideration because of their environmental or social mission, even though they weren’t the most compelling businesses competing for capital inside our Investment Committee.

Over time, we realized something important.

Our responsibility as fiduciaries is first and foremost to maximize returns for our investors.

If a company can generate exceptional returns while also improving the world, that’s ideal.

But pursuing impact at the expense of building the strongest portfolio wasn’t producing the outcomes we wanted, so we passed on almost all of the ESG deals presented when competing them against other investments we could make.

Meanwhile, the broader market was evolving.

The global ESG narrative gradually lost momentum, particularly in the United States, while Europe continued placing far greater emphasis on climate and sustainability initiatives.

Our thinking evolved alongside those market realities.

Phase Two: Narrowing the Focus to Climate

By late 2025, we believed we had learned from the ESG experiment.

Rather than a broad Impact vertical, we launched a Climate Tech team. The hypothesis was straightforward:

Instead of investing across every type of company that had ESG / impact potential, we’d specialize in founders solving climate-related challenges:

• It was more focused.
• More technically rigorous.
• More differentiated.

For several quarters, our Climate team sourced exciting opportunities and presented them during Partner Meetings and Investment Committee sessions.

Yet something surprising kept happening: We continued passing on most of these deals.

Eventually we asked ourselves why.

The answer became remarkably consistent.

It wasn’t because the founders weren’t talented.

It wasn’t because the technology wasn’t impressive.

It wasn’t because reducing emissions wasn’t important.

Customers have procurement processes. Customers have operational constraints. Customers don’t purchase products because they support an investment fund’s climate theme.

They purchase products because they have a real problem that must be solved to operate and/grow their business.

Even where governments created regulations or incentives, particularly across Europe, we found ourselves repeatedly asking a more fundamental question:

Would this company still become a massive business if sustainability mandates changed?

Too often, the answer wasn’t obvious.

The Real Customer Is Industrial Clients

This shifted our entire framework. Instead of beginning with environmental outcomes, we began asking different questions:

• What painful industrial problem is this startup solving?
• Does it reduce manufacturing costs?
• Increase factory throughput?
• Improve supply chain resilience?
• Reduce downtime?
• Lower labor costs?
• Increase productivity?
• Improve energy reliability?
• Reduce maintenance?
• Create measurable economic value?

If the answer was yes, customers didn’t need to be convinced to care about climate.

They already wanted the solution because it improved their business.

The environmental outcome became a natural consequence rather than the primary reason for adoption.

Ironically, these businesses may create some of the largest positive environmental impacts precisely because they succeed economically:

• Efficient factories consume fewer resources.
• Reliable electrical infrastructure reduces waste.
• Smarter logistics reduce fuel consumption.
• Better manufacturing produces less scrap.
• Industrial optimization naturally leads to environmental improvement.

Not because customers bought into a desire to improve the climate.

Because customers bought economics.

Phase Three: We Renamed the Vertical, Climate → Industrial

This realization led us to rename the Climate vertical team on our investment team.

Today, it is the Industrial vertical team.

That isn’t a rejection of climate investing.

Many of the companies we’ll invest in will still be categorized by others as climate tech, energy transition, sustainability, advanced manufacturing, robotics, infrastructure, circular economy, or industrial technology.

The difference is where we begin. We don’t start with the environmental outcome. We start with the customer.

We ask:

• Who is buying this?
• What painful problem are they solving?
• How large is the economic benefit?
• Would customers purchase this even if sustainability was not part of the conversation?

When those questions have strong answers, we often discover businesses capable of creating enormous environmental benefits anyway.

The climate impact doesn’t disappear.

It simply becomes a consequence of building a superior business.

The Lesson

The journey from ESG to Climate to Industrial wasn’t about abandoning impact.

It was about understanding how markets actually work.

Businesses don’t scale because they fit an investment narrative.

They scale because they solve real direct problems for real customers.

That’s ultimately the lesson we’ve learned after seven years of refining this investment philosophy.

The world’s biggest environmental improvements will likely come from companies that customers adopt because they’re faster, cheaper, more reliable, more productive, and more profitable.

In other words:

The customer was never ESG / Impact or Climate.