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Home Management Leadership Growth Strategies Corporate Social Responsibility

Billions in ESG business services are up for grabs

FutureCIO Editors by FutureCIO Editors
June 15, 2022
Photo by Singkham from Pexels: https://www.pexels.com/photo/clear-light-bulb-planter-on-gray-rock-1108572/

Photo by Singkham from Pexels: https://www.pexels.com/photo/clear-light-bulb-planter-on-gray-rock-1108572/

IDC defines environmental, social, and governance (ESG) business services 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 organisations 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.

IDC says organisations face mounting pressures to improve and document their environmental, social, and governance (ESG) performance. IDC acknowledges that for organisations new to ESG, the steps to a sustainable transformation can be daunting.

IDC estimates that ESG business services spending will grow to $158 billion in 2025 with a five-year compound annual growth rate (CAGR) of 32.3%.

Dan Versace

"In 2022, all enterprises are being pushed to transform and fundamentally change the way they do business to become sustainable enterprises," said Dan Versace, research analyst, ESG Business Services.

He opined that owing to increased pressure from customers, investors, and regulators, organisations are beginning to understand the business cases for sustainability.

“Those organisations that develop and implement plans to better internalize and address their environmental and social impact stand to thrive in the years ahead as leaders in the sustainability space," he added.

Focus areas of ESG investing

The focus areas for organisations' investment in sustainability are business strategy, human capital management solutions, and risk management. The largest area of spending, strategy consulting, will enable organisations to efficiently embed sustainability into their business strategy, which is the driving force of corporate purpose and in turn sustainable operations.

Human capital management will be the fastest-growing area of spending. This is primarily due to the dual challenge of creating large-scale organisation-wide training and process efficiency improvements necessary for sustainability efforts to succeed in the future, on top of addressing social pillar topics such as human capital management internally.

The increased spending across functions is forcing organisations to address corporate sustainability in a holistic way, moving away from the ad hoc approach that was present in years past. This imperative to act sustainably in all facets of an organisation is becoming more powerful as mandated sustainability disclosures draw nearer.

While many organisations are already reporting on their climate-related performance voluntarily (scope 1 and 2 emissions, carbon intensity, etc.), professional services will still be needed to increase the process efficiency as more resource-intensive reporting becomes mandatory.

In addition to the recognition of the inherent link between social and environmental sustainability beginning to be understood on the corporate level, more nuanced and pointed services will be needed to address the societal impact of enterprises' operations in the future.

IDC expects sustainability-linked business consulting services to encompass nearly two-thirds of the total business services market. "With this market being still in its infancy, opportunities for differentiation are everywhere. Firms should assess their sustainability-linked business services to determine where these offerings can best be utilized and identify other end-user pain points where new offerings will be needed," added Versace.

Related:  Mitigating deepfakes in the enterprise
Tags: ESGESG Business ServicesIDC
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