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ESG business services on the rise

September 5, 2023

Worldwide spending on purpose-built sustainability services will reach $65 billion (€60.4 billion) in 2027, according to a new IDC forecast.

Environmental, social, and governance (ESG) business services, once a nebulous and ill-defined market, has become one of the fastest-growing spaces in the business world. In a new forecast that focuses on purpose-built sustainability services, International Data Corporation (IDC) projects spending on ESG business services will grow from $37.7 billion (€35.05 billion) in 2023 to nearly $65.0 billion (€60.4 billion) in 2027. This represents a compound annual growth rate (CAGR) of 14.9% over the 2022-2027 forecast period.

Sustainable business strategies fully engrain sustainability-related considerations into a company’s business strategy, considering the impact that related topics and issues have on its risk profile, operational and financial performance, and overall long-term value creation. This has created opportunities for business services firms to provide sustainability-related services around strategy, operations and business model, human capital, and so forth.

As organisations continue to push for innovation around their operations and strategy, sustainability-linked consulting spending continues to be a high priority as the initial steps to beginning a sustainable transformation can be daunting to those firms that have not attempted anything similar in the past.

“With the needs for guidance and tools for sustainable operations growing, the market for purpose-built ESG and sustainability services is rife with opportunity for large and small vendors alike,” said Dan Versace, Research Analyst, ESG Business Services. “Pressure for change is more prescient than ever, and businesses that fail to act face risk to their brand image, financial performance, and even their infrastructure due to the ever-present threat of extreme weather events and resource shortages caused by climate change. With less than six years until the effects of climate change become irreversible, action is needed now to address current risks and mitigate the threat for the years to come.”

ESG business services are defined as traditional professional services that are centred around achieving goals related to environmental and social sustainability and the governance of that process. It can also include ESG-enabling services, known as sustainability-linked professional services that enable organizations to increase their sustainability capabilities through traditional business process improvement, such as services focused on increasing process efficiency or supply chain services to reduce risk.

The redefinition from ESG-enabling services to purpose-built sustainability services allows for a more in-depth look into both market trends and end-user spending intentions for the years to come. For vendors to effectively market, sell, and develop their services, understanding the needs, wants, and requirements of their clients is of the utmost importance.

The new IDC forecast focuses entirely on purpose-built ESG professional services, those being the consulting, implementation, engineering, and IT services that are designed to drive sustainability-related outcomes as the main output from their use. The forecast measures only services whose sole intent is to drive sustainable outcomes for their users. These services include, but are not limited to, ESG strategy development and implementation, sustainable operations consulting, ESG reporting services, circularity consulting, green IT implementation services, and managed sustainability performance services.

A 2022 IDC survey found that nearly two thirds of respondents planned to allocate more than half of their professional services spending to sustainability services over the next two years. As organisations commit more of their professional services budgets to enabling sustainable transformation, the main focus areas for these investments are strategy development and implementation, human capital management, and ESG reporting. IDC expects sustainability strategy and human capital management services to represent nearly 60% of the total spending on ESG professional services by 2027.

IDC believes that strategy consulting will continue to grow in importance as it is integral to any enterprise’s sustainable transformation. Strategy consulting enables organizations to efficiently embed sustainability into their business strategy, which is the driving force of corporate purpose and in turn sustainable operations. As market maturity grows, it is expected that resources committed to developing and implanting sustainable business strategies will decrease and be shifted to operationalising said plans.

Human capital management is forecast to be the fastest-growing segment with a five-year CAGR of 28.3%. This is primarily due to the large-scale need for organisation-wide training and process efficiency improvements that will be necessary for sustainability efforts to succeed in the future. IDC expects the human capital management section to be the largest area of ESG services spending by the end of the forecast period.

While the importance of ESG reporting remains important as mandated sustainability disclosures draw nearer, many organisations are already prepared for this due to voluntary reporting on their climate-related performance (scopes 1 and 2 emissions, carbon intensity, etc.). Professional services will still be needed, however, to increase the process efficiency as more resource-intensive reporting becomes required.

Categories : World Focus

Tags : ESG IDC Reporting Services Sustainability Technology

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