Environmental, Social, and Governance (ESG) Business Services on an Exponential Growth Trajectory
The landscape of business is undergoing a profound transformation as Environmental, Social, and Governance (ESG) business services surge into prominence. Once an elusive and undefined sector, ESG services are now emerging as one of the most rapidly growing domains in the business arena. International Data Corporation (IDC), in a forward-looking projection concentrating on purpose-built sustainability services, foresees a remarkable surge in spending on ESG business services, escalating from $37.7 billion in 2023 to an impressive $65.0 billion by 2027. This growth signifies a Compound Annual Growth Rate (CAGR) of 14.9% across the 2022-2027 forecast period.
The Power of Sustainable Business Strategies
Sustainable business strategies have not just embraced but fully integrated sustainability considerations into the very fabric of a company’s operations. This encompasses understanding how sustainability impacts risk profiles, operational and financial performance, and long-term value creation. Such strategies have given rise to opportunities for business service providers to offer a spectrum of sustainability-related services encompassing strategy formulation, operational streamlining, human capital management, and more. As organizations venture into operational and strategic innovation, spending on sustainability-linked consulting has assumed prime importance. This is particularly significant as the initial steps towards a sustainable transformation can be daunting for businesses unaccustomed to such endeavors.
AI as a Catalyst for Change
In a landscape characterized by growing demand for guidance and tools for sustainable operations, the potential for purpose-built ESG and sustainability services is abundant for vendors of all sizes. Dan Versace, a research analyst specializing in ESG Business Services, asserts, “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.”
From ESG-enabling to Purpose-built Sustainability Services
The transition from ESG-enabling services to purpose-built sustainability services is a pivotal shift. This redefinition allows for an in-depth exploration of market trends and end-user spending intentions. To effectively serve their clients, vendors must comprehend their needs, preferences, and prerequisites.
The IDC forecast solely delves into purpose-built ESG professional services—consulting, implementation, engineering, and IT services designed to drive sustainability-related outcomes. These services encompass ESG strategy development, sustainable operations consulting, ESG reporting, circularity consulting, green IT implementation, and managed sustainability performance services.
Future Focus: Strategy and Human Capital Management
A 2022 IDC survey unveiled that nearly two-thirds of respondents planned to allocate over half of their professional services budget to sustainability services in the next two years. Strategy development, human capital management, and ESG reporting are key focus areas for these investments. As the maturity of the market evolves, the shift is anticipated from developing sustainable business strategies to operationalizing them.
Human capital management is poised to be the fastest-growing segment, expected to witness a five-year CAGR of 28.3%. The emphasis on organization-wide training and process efficiency improvements is paramount for successful sustainability endeavors.
While ESG reporting remains pivotal, professional services will play a crucial role in streamlining resource-intensive reporting processes as stricter mandates draw closer.
The landscape of sustainability services is an unfolding saga of transformation and growth. As organizations channel resources towards sustainable transformations, the path is paved for strategic reconfiguration, operational excellence, and a future where sustainability reigns supreme.