Sustainable Services Spending to Hit $65B by 2027: IDC

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by KnowESG
KnowESG_Sustainable Services Spending to Hit $65B by 2027: IDC
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Once vague and undefined, Environmental, Social, and Governance (ESG) business services have emerged as a thriving sector in the corporate world.

According to a fresh projection from the International Data Corporation (IDC), spending on purpose-built sustainability services is set to surge. From $37.7 billion in 2023, the expenditure on ESG business services is anticipated to reach nearly $65.0 billion in 2027. This growth reflects a substantial Compound Annual Growth Rate (CAGR) of 14.9% during the 2022–2027 forecast span.

Sustainable business strategies have integrated sustainability considerations directly into a company's operational fabric, addressing impacts on risk, performance, and long-term value.

This transformation has opened avenues for business service providers to offer sustainability-focused services spanning strategy, operations, human capital, and beyond. As businesses strive for innovation in operations and strategy, the demand for sustainability-focused consulting remains high. This is especially true for firms embarking on their first steps toward sustainability, which can be formidable.

Dan Versace, ESG Business Services research analyst, emphasises, "The growing need for guidance and tools to achieve sustainable operations presents a wealth of opportunities for vendors, both large and small."

The urgency for change has never been greater. Companies failing to act risk their brand image, financial standing, and infrastructure due to climate change-driven challenges. As the irreversible effects of climate change approach within six years, immediate action is imperative to address current risks and mitigate future threats.

ESG business services encompass traditional professional services aimed at achieving environmental, social, and governance sustainability goals. This category also includes ESG-enabling services that empower organisations to enhance their sustainability through process improvements, like boosting supply chain efficiency to mitigate risk.

Shifting from ESG-enabling services to purpose-built sustainability services provides a deeper insight into future market trends and spending intentions. To effectively promote, sell, and develop services, understanding client needs and requirements is paramount.

IDC's new forecast exclusively focuses on purpose-built ESG professional services. This includes consulting, implementation, engineering, and IT services crafted to drive sustainability outcomes.

The forecast measures services with the primary intent of yielding sustainable results. These services encompass ESG strategy development and implementation, sustainable operations consultation, ESG reporting, circularity consulting, green IT implementation, and managed sustainability performance services.

A 2022 IDC survey found that nearly two-thirds of respondents intended to allocate over half of their professional services budget to sustainability services in the next two years.

As organisations allocate more budget to sustainable transformation, the key investment areas are strategy development, human capital management, and ESG reporting. By 2027, IDC expects strategy and human capital management services to constitute almost 60% of ESG professional services spending.

IDC predicts that strategy consulting will retain its importance as a crucial aspect of sustainable transformation. Embedding sustainability into business strategy is pivotal for driving corporate purpose and sustainable operations. As the market matures, resources dedicated to developing and implementing sustainable business strategies will shift toward operationalisation.

With a five-year CAGR of 28.3%, human capital management is projected to be the fastest-growing segment. The need for organisation-wide training and process improvements for successful sustainability efforts contributes to this growth. By the forecast's end, human capital management is expected to dominate ESG services spending.

While ESG reporting remains significant due to impending mandatory sustainability disclosures, many organisations have already prepared through voluntary reporting on climate performance. Nonetheless, professional services will be required to streamline processes as reporting becomes more resource-intensive.

The report "Worldwide Purpose-Built Sustainability Services Forecast, 2023–2027" provides an in-depth analysis of the global purpose-built sustainability services market based on IDC-defined service lines. This forecast redefines IDC's previous ESG business services projection, refining service definitions.

Further details on service line definitions can be found in IDC's "Worldwide Environmental, Social, and Governance Business Services Taxonomy."

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Source: IDC

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