Spending on ESG Business Services to Reach $158 Billion in 2025

Spending on ESG Business Services to Reach $158 Billion in 2025

Organizations face mounting pressures to improve and document their environmental, social, and governance (ESG) performance, according to IDC. Because the initial steps to a sustainable transformation can be daunting to firms that have not attempted anything similar in the past, sustainability-linked consulting spending has become a high priority. A new forecast from 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%.

"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. "Owing to increased pressure from customers, investors, and regulators, organizations are beginning to understand the business cases for sustainability. Those organizations 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.

The main focus areas for organizations' investment in sustainability are business strategy, human capital management solutions, and risk management. The largest area of spending, strategy consulting, will enable organizations 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 organization-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 organizations to address corporate sustainability holistically, moving away from the ad hoc approach that was present in years past. This imperative to act sustainably in all facets of an organization is becoming more powerful as mandated sustainability disclosures draw nearer. While many organizations are already reporting on their climate-related performance voluntarily, 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.

"By the end of the forecast period, IDC expects sustainability-linked business consulting services to encompass nearly two-thirds of the total business services market," added Versace. "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.