As ESG’s star continues to rise, we review signals in the burgeoning ESG market. A new report from global analyst Verdantix estimates spending by companies on environmental and social governance (ESG) and sustainability consulting is set to more than double over the next five years, to a record $16 billion.
The market is set to grow at a CAGR of 17 per cent, Verdantix analysis shows, from around $6.24 billion at the end of last year. The hike in ESG activity will stem from forthcoming regulatory change and pressure from stakeholders, combining with GDP growth and policy development.
Growth is predicted to be strongest in the EMEA region, with North America and APAC close behind. All ESG and sustainability consulting services are expected to achieve double digit growth over the period, but corporate reporting and disclosures will see the biggest increases with a CAGR of 21 per cent.
The predictions make sense because without more transparent and more capable carbon reporting and disclosure, companies will be unable to leverage the many green finance and loan options coming to market to fund their expansion.
Additionally, as new regulatory requirements redefine the framework for sustainability initiatives, firms are set to recognise fundamental changes across their business model, operations and strategies.
Verdantix research director and report author Kim Knickle said: “Over the next five years, businesses will have to reorientate themselves around ESG and sustainability consulting priorities. This represents a complex challenge that will take place against a rapidly evolving regulatory backdrop.
“As a result, consultancies stand to benefit as firms look for external expertise to help them achieve transformational change and more rigorous standards of reporting.”
It is worth mentioning that external consultancy support can be pricy. Given that reporting will be both annual and rigorous moving forwards, companies may wish to consider whether recruiting dedicated internal disclosure teams might make sense in the longer term.
Demand also looks set to rise within green product innovation and stewardship as well as supply chain sustainability improvements – plus increased scrutiny on resource requirements and greater transparency. In addition, ESG factors will become more integrated into investment and M&A decision making too.
Further market movements suggest that the Verdantix predictions may well be on the numbers. The UK’s largest pension insurance specialist, Rothesay, has signed a ten-year carbon dioxide removal agreement with Climeworks.
Rothesay says that as long-term investors, insurance companies are in a uniquely powerful position to take climate action, helping to scale important climate solutions and manage the impact of climate change. One such solution is carbon removal, which Rothesay argues must be an essential component of Net Zero roadmaps in addition to emissions reduction efforts.
Regardless of your position on carbon removal, which remains, to say the least, a contentious technology, long-term agreements as a whole are crucial to help scale the market for both carbon and sustainability in general. Long termism offers every side of the equation planning security, and this goes some way towards evidencing the real-world likelihood of the ESG and reporting upticks predicted by Verdantix too. Long term deals require ESG assurance.
“Rothesay is delighted to partner with Climeworks to remove the CO2 produced by the day-to-day running of our business,” says David Land, Rothesay’s Head of Investment Strategy and chair of its Climate Change Working Group.
“As part of our pathway to Net Zero, we have conducted rigorous due diligence on our carbon removal options and have chosen Climeworks because its technology allows us to measurably neutralise the environmental impact of our operations.
“Like Rothesay, Climeworks is an innovative, purpose built company that is delivering highly effective solutions for its clients, and we look forward to a long-term partnership.”
Rothesay, it should be noted, has also committed to regular and transparent reporting on its progress to ensure accountability and has fully embedded climate risk management within its business. This remains essential to ESG and CSR compliance for any forward-looking company and acts as another strong indicator on the validity of Verdantix claims on the burgeoning market potential.