If you’ve recently raised or are preparing to raise a fund, you’ve probably noticed it’s hard to stand out.

The fundraising cycle is longer, LPs are more selective, and the questions are more in-depth. However, one theme keeps surfacing in conversations with investors - sustainability.‍

Across both sustainability and finance teams, sustainability has become a crucial indicator of how prepared a manager is for the next decade of capital markets.

Capital is shifting direction

By mid-2025, sustainable funds managed $3.92 trillion in assets, a 11.5% increase since December 2024.

This number matters because it reflects how investors are reallocating their assets. LPs aren’t rewarding sustainability for optics. They’re rewarding it because sustainability demonstrates operational rigor: the ability to identify emerging risks, anticipate regulatory shifts, and protect long-term value.‍

Why sustainability matters for fundraising

For any fund currently raising - whether new, thematic, or repositioning - sustainability has become a credibility multiplier.

‍LPs are advancing toward their net-zero commitments and are prioritizing managers who can effectively support that transition. This alignment is reshaping how capital flows:

1. Data-backed sustainability reporting builds institutional trust.
2. A credible sustainability framework speeds up due diligence processes.
3. Strong sustainability integration unlocks anchor LPs and long-term relationships.

In 2025, sustainability isn’t just a marketing narrative, it’s an operating advantage.

‍LPs are redefining what they expect

This shift in capital flow isn’t just preference, it reflects how LPs themselves are evolving.

“Sustainability has moved from a compliance exercise to a performance lens. LPs no longer view sustainability as a tick-box exercise, but rather as a means to evaluate how disciplined, transparent, and forward-thinking a manager is.”

Gonzalo Rodés, Founding Partner at Aldea Ventures

Some numbers tell the story:

1. 72% of LPs plan to increase allocations to sustainability and impact strategies within two years.

2. Around 60% of firms already embed sustainability clauses in LP agreements.

3. Sustainability analysis now shapes due diligence, valuations, and portfolio reviews.‍

What once fell under the term ‘sustainability initiatives’ like good governance, portfolio diversity, carbon accounting, is now seen as fundamental business practices. This is why sustainability has become a new baseline for institutional readiness.

From storytelling to measurement

As expectations rise, LPs want more than intent, they want evidence. The conversation with LPs has shifted from what managers believe to what they can prove.

‍LPs now expect funds to demonstrate measurable progress within 12 to 24 months of deployment. This means being able to quantify climate and social risk, track portfolio-level changes, and report results consistently. Funds that can demonstrate progress on sustainability targets, rather than just promise it, are the ones staying in LP pipelines.‍

Sustainability is no longer a side strategy. It’s a signal of operational quality: of how a manager runs the firm, evaluates opportunity, and delivers value over time. And increasingly, that’s what capital is rewarding.

Kara: purpose-built for private markets

Kara was designed specifically for private capital firms that want to turn compliance into a competitive edge. Some of the most forward-thinking investors have already made the switch, and use Kara to stand out in fundraising.

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