Executive Summary: ISG Provider Lens™ Sustainability and ESG - Europe 2024

The individual quadrant reports are available at:

ISG Provider Lens™ Sustainability and ESG - Data Platforms and Managed Services - Europe 2024

ISG Provider Lens™ Sustainability and ESG - IT Solutions and Services - Europe 2024

ISG Provider Lens™ Sustainability and ESG - OT and Industry-specific Solutions and Services - Europe 2024

ISG Provider Lens™ Sustainability and ESG - Strategy and Enablement Services - Europe 2024

Supply of solutions currently outstrips demand, but major market growth is expected

Following the inaugural sustainability and decarbonization services quadrant featured in the Digital Business Enablement and ESG services IPL in 2022, ISG is excited to bring an expanded and dedicated IPL study to reflect the rapidly evolving sustainability and ESG services market. The scope of this IPL study is one of the largest ISG has performed, with new grids, criteria and assessed provider lists.

Driven by stakeholder capitalism, the climate and energy crises, growing international and political pressure, government regulation and incentive packages, it is clear that many European organizations need to better
understand and report their sustainability and ESG risks and performance — also known as non-financial performance. Further, besides reputation risk, there is an opportunity for organizations that can convert  validated progress into brand value and ultimately increased margins and/or revenue.

Due to this near-universally affecting set of macro drivers, the global market for digital sustainability and ESG solutions and services is highly likely to grow from approximately €50 billion in 2022, to over €100 billion by 2030.

The rapid escalation of energy costs across Europe required many organizations to reduce consumption and brought an opportunity to begin addressing decarbonization efforts simultaneously. Process and operational
efficiency have become top-of-mind priority in C-suites and boardrooms, and a closer look at the reliability and security of energy supplies resulted in a fertile market for digital solutions for energy infrastructure and consumption.

Investors and financial services played a crucial part in creating macro demand for more sustainable  businesses. Greater interest and appreciation for the positive relationship between mitigating ESG risks and a company’s overall market value over time has increased the demand for transparency of ESG risks and 
opportunities and analysis of more sustainable and circular business models.

Investors and service providers have received a clear indication of the European Union’s intentions regarding sustainability’s role in building future economic growth. The European Green Deal is a comprehensive  program initiated by the European Commission with the overarching aim of making the EU climate neutral by 2050. It includes more than €1 trillion of planned investment by 2030 in renewable energy, energy efficiency measures, and other areas. The program entails driving sustainable industries, such as manufacturing, transport, construction and agriculture. Digital services will be critical to this transformation; therefore,
portions of this funding will find their way to providers of those services.

One of the other most consistent focus areas for both organizations and ESG service providers is to efficiently address the requirements of the EU’s Corporate Sustainability Reporting Directive (CSRD). CSRD will require approximately 11,700 companies to begin externally reporting certain sustainability and ESG data in specific
formats from 1 January 2024 and up to 50,000 companies by 2026 – representing over 60 percent of EU firms. Affected organizations include non-EU companies with over €150m net turnover in the EU. Further detail will be required when the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) comes into
law across the EU member states (expected by 2027). It will apply to over 15,000 EU and non-EU 
organizations. CSDDD creates accountabilities and consequences for company directors and  shareholders for due diligence on ESG risks in their supply chains. The German Supply Chain Due Diligence Act already  mandates similar requirements for businesses operating in Germany. Mandatory reporting for modern slavery also exists in the U.K., France and Norway.

Altogether, organizations subject to the directives are likely to be required to regularly report over 1,000 ESG data points annually, many of which are not recorded today or exist in disparate systems. While these organizations must find a way to accurately report these data points, it is even more important to focus on
the key 25-50 metrics most significant to their business.

Naturally, AI plays a key role in leading organizations to separate insights from the noise. As organizations refine their ESG materiality assessments to better understand both the risks the world represents to their
business (e.g. extreme weather) and the risks their business represents to the world (e.g. deforestation) – also known as double materiality – they can increase focus and dig much deeper into how to mitigate those risks or turn to their advantage. This means providers need to consider more complex scenarios, requiring more relevant data with highly tailored AI and efficient computing to plot the optimal pathway for sustainable and circular business. For example, insurers must be able to simulate global weather patterns and resulting risks to insured assets to best estimate appropriate premiums; this requires extracting insight from data for weather, geospatial sources, satellite imagery, urban environments, asset construction and more.

The European population’s elevated environmental and social awareness makes the region home to some of the most ambitious organizations for sustainability, with many going beyond regulatory compliance and
seeking to derive sustainability premiums and differentiation for stronger financial results.

Despite organizations’ demand accelerating rapidly in Europe, demand has been outstripped by the available supply of solutions. The increase in providers from traditionally non-IT backgrounds who have shown impressive adaptability in joining this market, is especially noteworthy. Key players have entered from
industrial, engineering and environmental markets. Each of those markets has become increasingly digitized, and the overlap with the digital sustainability and ESG market has grown significantly larger. While there are
many partnerships among these players, if each provider’s revenues do not quickly rise as mainstream demand takes off over the next two to five years, the market will probably have too many solutions, and providers will need to rationalize portfolios.

The significant expansion of this market is reflected in this IPL being split between four regional quadrants and an additional global quadrant:

1. Strategy and Enablement
2. Technology Solutions and Implementation
Services - Information Technology (IT)
3. Technology Solutions and Implementation
Services - Operational Technology (OT)
4. Data Platforms and Managed Services
5. Rating and Benchmarking Services (Global)

Across all quadrants, there is a higher-than-average ratio of Leaders to the other segments — this reflects the competition and relative market penetration most big-name providers have achieved. The Leader  segments are occupied predominantly by traditional IT service providers. However, the increasing presence of strong providers from non-IT markets is clear.

Beyond the Leaders, many organizations offer a broad range of solutions, hence the high number of Product Challengers. However, these providers appear to be either earlier in their business development efforts or are struggling for differentiation and, therefore, not yet seeing the traction that Leaders enjoy.

The low maturity of market depth is reflected in the low number of Market Challengers – essentially, the demand that does exist has orientated toward the big-name players that have developed holistic portfolios and been able to leverage either existing client relationships to expand or demonstrate relevant and  impactful case studies.

Further observations are provided at the beginning of each Quadrant.

As these markets continue to evolve at pace, ISG will expand and enhance the depth of market analysis. Please contact ISG to discuss any specific areas of interest.

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