ISG Provider Lens® Digital Sustainability - IT Solutions and Services - Europe & Global 2025

The European market is shifting its focus from compliance to delivering measurable, resilient value

Europe remains the world’s leading market for digital sustainability, in terms of value, volume and sophistication of digital solutions to enhance environmental, social and governance (ESG) performance. Its leadership is driven by regulatory and stakeholder pressure, energy system transformation and evolving business models. The European digital sustainability market is currently defined by two major shifts:

• Short-term clarity is emerging as the EU’s Corporate Sustainability Reporting Directive (CSRD) begins its first reporting cycle for wave-one companies in 2025. However, the European Commission’s Omnibus simplification package has significantly changed the landscape: thresholds for CSRD have been raised, removing about 90 percent of companies from the scope and leaving roughly 5,000 companies in scope.

The package also pushes back deadlines — wave-two CSRD filers are now expected to report in 2028, and the Corporate Sustainability Due Diligence Directive (CSDDD) is postponed to 2029. While these changes reduce short-term burdens and aim to boost competitiveness, they create considerable uncertainty for smaller and non-EU firms in the medium term and raise concerns about decreased transparency and reduced effectiveness of the EU’s sustainability framework.

• Buyer’s sustainability priorities are shifting from pure compliance programs to operational efficiency and value creation at scale. Organizations are emphasizing energy efficiency, risk management, supply chain transparency and AI-assisted reporting, and rewarding providers that demonstrate measurable outcomes across industries. Enterprise-level, average data sets are no longer adequate for advanced buyers who require product-level, actuals-based data across the entire value chain. More fundamentally, European organizations increasingly view sustainability as a way to boost competitiveness rather than solely a moral obligation.

As a result of these shifts, European-based organisations are increasing investments, and the competition to provide digital solutions to address these challenges is intensifying. ISG estimates that the overall digital sustainability market will expand from approximately $30.3 billion in 2025, with a forecasted compound annual growth rate (CAGR) of 16 percent, reaching $41 billion in 2027. Strategy and enablement services and OT and industry-specific solutions and services lead the subsegments, with estimated market value shares of 28 percent and 35 percent, respectively. The spending by Europeheadquartered organizations represents approximately $12.1 billion, or 40 percent, of the global market, growing slightly above the global CAGR at approximately 17 percent.

A major increase in case studies also signals market growth. In 2025, ISG’s research identified approximately 1,200 new case studies, mostly attributed to client work in 2024 and 2025. ISG’s database now contains nearly 2,500 case studies, with over 40 percent linked to European clients and the common industries being power and utilities (16 percent), manufacturing (14 percent), retail and CPG (12 percent) and the public sector (12 percent).

Market demand overview

Regulatory dynamics reshaping demand

While mandatory reporting requirements continue to evolve in line with global competitiveness and geopolitics, extensive voluntary reporting remains common. Despite delays in reporting regulations, companies recognize disclosure as a matter of when, not if. Key mandatory drivers include the following:

• Europe’s core sustainability reporting regime, CSRD, is now active. The large Europe-based companies in wave-one — which were previously covered by the Non-Financial Reporting Directive — are reporting their FY24 sustainability data in 2025, in accordance with the European Sustainability Reporting Standards (ESRS). The European Commission’s 2025 Omnibus package introduced a stop-the-clock provision for the later waves of smaller and non-EUheadquartered companies and a quick-fix delegated act to offer additional flexibility for FY25-26. Its proposals to narrow the scope of CSRD to companies with over 1,000 employees and €450 million in turnover are likely to be confirmed before the end of 2025.

• The EU’s corporate due diligence regime requiring supply chain disclosures, CSDDD, will be implemented gradually by EU member nations, starting in 2028. It increases requirements for human rights and environmental due diligence and requires transition plans aligned with 1.5°C. Based on current Omnibus proposals, it appears likely that companies with more than 5,000 employees and over €1.5 billion in revenue will be required to report on FY28 data in 2029. All other companies previously considered in scope will likely be excluded, raising concerns that large companies will be unable to obtain accurate sustainability data throughout their value chains.

• The EU AI Act timelines are taking effect. While prohibited practices and AI literacy requirements came into force on February 2, 2025, governance, penalties and generalpurpose AI (GPAI) rules were made effective on August 2, 2025. Most other rules will be applicable from August 2026, with high-risk systems needing full compliance by 2027. Fines can reach €35 million or 7 percent of global revenue.

• The carbon border adjustment mechanism (CBAM) will move to its final regime in 2026. On January 1, 2026, it will shift from its transitional phase to the final regime, coinciding with the phase-out of the EU emissions trading system (ETS) free allowances. From that date, importers of covered goods (iron, steel, cement, aluminum, fertilizers, electricity and hydrogen) into the EU must purchase CBAM certificates to account for embedded emissions.

• The Taskforce for Nature-related Financial Disclosures (TNFD) continues to develop, with adoption of its reporting standards rising. TNFD is a voluntary framework for expanding corporate disclosures from climate-related to nature-related topics, such as biodiversity and water, and integrating these considerations into corporate governance, strategy, risk management and metrics. In 2025, more than 500 companies and 129 financial institutions, representing $17.7 trillion in assets, have adopted or tested TNFD-aligned reporting.

Together, for the organisations they affect, these measures shift budgets toward scalable, auditable ESG data platforms, due diligence workflows and AI governance. They also strengthen the business case for decarbonizing operations and supply chains.

Macro forces driving resilience, cost and decarbonization

Europe’s economy continues to experience moderate growth and persistent inflationary pressures in 2025. According to the European Commission’s Autumn 2025 forecast, real GDP is expected to grow by 0.9 percent in the euro area, with inflation forecasted to drop to 2.1 percent by 2026.

The European Commission’s REPowerEU road map, published in May 2025, outlines a plan to completely end Russian gas imports by the end of 2027. Renewables have reached record levels in the EU power mix. In 2024, renewables produced 47.3 percent of total electricity, up 7.7 percent from 2023. In the second quarter of 2025, renewables supplied 54 percent of net electricity, with solar leading and becoming the single largest source in June 2025 at 22 percent of total output, surpassing nuclear (21.6 percent), wind (15.8 percent), hydro (14.1 percent) and natural gas (13.8 percent).

EU greenhouse gas (GHG) emissions fell by a record 8.3 percent in 2023 and 2.9 percent in 2024, reducing net emissions to 37 percent below 1990 levels. During the same period, the EU’s GDP grew by 68 percent, indicating the ongoing decoupling of economic growth from emissions. Whether the EU can achieve its 2030 target of a 55 percent net reduction largely depends on U.S. pressure to accept coal and gas imports as part of trade deals.

Energy-intensive sectors, including energy and utilities, oil and gas, manufacturing, construction and transportation, are focusing on solutions that reduce consumption (such as AI-enabled process control, smart building and fleet optimization), incorporate renewables and enhance flexibility, supported by reliable metering and emissions data.

Shift in demand from compliance to value

Regulatory compliance remains the initial trigger, but Boards now expect measurable results, such as lower cost to serve, reduced risk premiums, faster reporting times, higher asset uptime and product growth, rather than just activity metrics. The following shifts among buyers stand out:

1. Enterprise ESG data management is becoming a priority. Companies recognize they must invest in creating a single integrated view of ESG data that aligns with financial records. They integrate and orchestrate complex data pipelines across ERPs, finance, procurement, HR, operations and OT systems, supported by managed services for data acquisition and controls.

2. Supply chain and product-level transparency are now essential. CSRD’s double materiality and upcoming CSDDD require comprehensive visibility, especially in Scope 3 and human rights. Buyers prefer providers that combine due diligence expertise with scalable supplier data exchange and product carbon footprints (PCF) down to the SKU/BOM level. The EU’s CBAM further accelerates emissions-grade data collection for exposed categories, and European consumers are increasingly seeking userfriendly transparency, such as QR codes for traceability.

3. AI with guardrails is moving into full production. Generative AI (GenAI) is being used to create sustainability report narratives, reconcile evidence and automate controls, while buyers expect AI risk management aligned with the EU AI Act and GDPR, model provenance and measurable productivity improvements in reporting and operations.

European consumer and capital market signals reinforce the shift toward sustainability. The 2025 Eurobarometer survey shows that 85 percent of EU citizens view climate change as a serious problem, and 38 percent feel personally exposed to climate-related risks; 81 percent support climate neutrality by 2050 and 88 percent want the EU to boost renewable energy and energy efficiency.

The European Environment Agency reports that 59 percent of consumers in 2024 are willing to pay a premium for products that are easier to repair, recyclable and produced sustainably, despite inflation. According to the International Energy Agency (IEA) World Energy Investment 2025 report, EU investment in low-emission electricity reached $390 billion. The investment ratio of renewables to unabated fossil fuel power is rising to 35:1, up from 6:1 a decade ago.

Key demand areas across ISG’s digital sustainability market segments and quadrants:

1. Strategy and Enablement Services

• Global 2025 market value: $8.4 billion (28 percent of total)

• Global case studies in ISG database: 566 (23 percent of total)

• Key demand areas: Organizations are adopting digitally enabled, data-driven, regulatory-grade double materiality and due diligence blueprints aligned with CSRD/ CSDDD and sector specifics, featuring chief finance officer (CFO)-ready business cases that integrate with broader digital transformations rather than standalone programs. Digital scenario modeling supports the assessment of climate risks and circular business model pathways. Operating model design clarifies the roles of finance (e.g. ESG Controllers), sustainability, risk, procurement and IT, with clear responsible, accountable, consulted and informed (RACI) models for data ownership and assurance.

2. OT and Industry-specific Solutions and Services

• Global 2025 market value: $10.6 billion (35 percent of total)

• Global case studies in ISG database: 760 (31 percent of total)

• Key demand areas: Organizations are prioritizing energy and asset optimization using AI and IoT to reduce consumption and emissions intensity, integrating behind-themeter renewables and flexibility and enabling circularity across design, maintenance and reverse logistics. The EU power mix’s growing share of renewables strengthens the ROI of electrification and efficiency investments.

3. IT Solutions and Services

• Global 2025 market value: $1 billion (3 percent of total)

• Global case studies in ISG database: 359 (15 percent of total)

• Key demand areas: Organizations are deploying responsible, energy-efficient AI models across the lifecycle (design, training and inference) as well as remanufactured and refurbished laptops offering as-new functionality and quality at up to 30 percent lower cost.

4. Data Advisory and Integration Services

• Global 2025 market value: $4.1 billion (14 percent of total)

• Global case studies in ISG database: 235 (10 percent of total)

• Key demand areas: Organizations are investing in enterprise ESG data management strategy, architecture, design and integration services to connect internal corporate and external partner systems, while avoiding wasted investments in existing capabilities. As such, they are engaging in third-party integrations with suppliers and other industry partners.

5. Data Platforms and Managed Services

• Global 2025 market value: $6.2 billion (21 percent of total)

• Global case studies in ISG database: 439 (18 percent of total)

• Key demand areas: Organizations are adopting platforms that provide interoperable, automated data analytics and decision support modeling at enterprise- and product-levels, integrated with systems used by finance, procurement, manufacturing and logistics. These platforms include lineage, controls and evidence suitable for limited assurance today and scalable to reasonable assurance for CSRD, CSDDD and other key regulations. They also deploy GenAI to generate qualitative narratives for corporate sustainability reporting. They are also leveraging managed services for supplier outreach, data quality and continuous controls monitoring, with AI-assisted narrative and query handling bound by the EU AI Act.

Country trends

Within Europe, while preparation for regulatory compliance continues to be an overarching theme, each country and region has several sub-trends:

• Germany and DACH: Strong momentum in supply chain due diligence (building on Germany’s Supply Chain Act) and industrial decarbonization; emphasis on auditable supplier data exchange and OT/energy optimization in manufacturing and utilities

• France and Benelux: Advanced CSRD readiness in large caps, increased focus on TNFD/biodiversity and product level data in consumer, retail and chemicals

• The Nordics: High sustainability literacy and renewable penetration; demand for circular models, product passports and SKU-level Scope 3; recent power mix trends supporting electrification

• Southern Europe: Rapid growth in renewables and grid modernization; rising interest among diversified groups in distributed energy management and flexibility; CSRD data platforms

• The U.K. and Ireland: Strong compliance and assurance focus, reinforced by the U.K.’s coal phase-out milestone; rising demand for AI governance aligned with the EU AI Act for EU-exposed operations

Market supply overview

Following a rapid influx of providers in 2023- 24 (as profiled in ISG’s 2024 study), supply is beginning to rationalize. Vendors are refining their portfolios around clear use cases (e.g., CSRD-grade reporting, PCF and life cycle assessments (LCAs) at scale, energy and asset efficiency, circular business models) and forming strategic alliances among consultancies, platform vendors, hyperscalers, engineering firms and data specialists. These patterns align with 2024 findings that buyers prioritize measurable outcomes and industrialized delivery.

The following patterns are defining winners in 2025:

• Outcome-focused plays: These are characterized by providers that link offerings to financial (e.g., revenue growth from EU Taxonomy-aligned products, energy cost savings verified) and risk outcomes (e.g., days to disclose reduced, audit adjustments lowered, supplier non-conformances remediated) and support claims with referenceable case studies.

• Industrialized delivery: Companies are investing in repeatable data architectures, accelerators (materiality, PCF, due diligence), managed services for controls and evidence management and cross-functional teams (finance controllers, data engineers, sustainability SMEs, change leaders) to scale efficient delivery.

Digital sustainability talent remains a common challenge for both buyers and providers, with European organizations and market research highlighting ongoing skills gaps in digital and sustainability. The WEF Future of Jobs Report 2025 found that environmental stewardship was among the top 10 fastest-growing skills worldwide for the first time, underscoring urgent needs in sustainability reporting, corporate ESG initiatives, circular economy knowledge and climate-conscious business strategies. It also revealed that 85 percent of employers plan to upskill or reskill their workforce in sustainability, AI and digital literacy by 2030, a trend mirrored in 2025 IPL responses, with all participating providers indicating upskilling in sustainability as a top priority.

Key provider actions for success in 2025

• Make finance a top-tier customer: Provide CFO-grade ESG data controls, reconciliations and workflow integration with financial close processes designed for limited assurance now and reasonable assurance later.

• Industrialize supply chain execution: Combine due diligence expertise with scalable supplier data collection, PCF at SKU/ BOM granularity and practical remediation (playbooks, financing, buying group incentives), aligned with CSDDD and CBAM.

• Implement AI safely: Integrate AI copilots for reporting and operations with clear model inventory, data governance, human oversight and risk management aligned with the EU AI Act.

• Prove results: Standardize key metrics for buyers such as time to report, audit adjustments, cost savings, energy intensity reduction, supplier risk mitigation and revenue from low-carbon products.

• Upskill at scale: Close the skills gap through structured academies covering sustainability, data engineering, AI risk and finance controls, and prioritize crossfunctional teams.

Outlook

The digital sustainability market in Europe remains in a growth phase. Regulations and risk management continue to drive action among buyers, as CSRD disclosures are made, supply chain data is collected for CSDDD, governance is established to comply with the AI Act and CBAM transforms international trade terms. Beyond compliance, organizations of all sizes are aligning their strategies with the renewable energy transition, investing in operational efficiency and resilience, and responding to signals from consumers and investors that favor companies turning sustainability into a competitive advantage.

Although uncertainty in global trade and geopolitics may constrain growth, the overall macro trends support increased investment in digital sustainability transformation. Providers that align portfolios to measurable outcomes, industrialize delivery with robust data and AI governance and combine deep industry and finance expertise will lead as demand catches up with supply across Europe in 2026.

ISG Provider Lens® Methodology updates

This 2025 study features several important updates:

• The 2024 IPL quadrant Data Platforms and Managed Services, which included advisory and integration services, has been divided into two quadrants: Data Advisory and Integration Services and Data Platforms and Managed Services (DPMS). Due to this split, providers’ standings in the DPMS quadrant in 2024 cannot be directly compared with those in 2025. Please contact ISG for more information.

• ISG has enhanced its analysis of provider revenue, partners, employees, service coverage and R&D investments relevant to digital sustainability. As a result, providers may have moved on the Market Strength axis compared with last year, even if the provider’s data in these respects has not changed.

• ISG’s methodology has enhanced the emphasis on the quantity and quality of client case studies provided by service providers to differentiate in Portfolio Attractiveness. Some capabilities are now more important to clients than they were 12 months ago. For example, technical knowledge and practical application of regional sustainability regulations are now essential for delivering strategy services. Due to recalibrating the criteria and weightings, some providers have moved lower on the Portfolio Attractiveness axis or have been removed from the grids. Each quadrant’s Observation section offers specific details on how the evaluation process has been adjusted in 2025.

• Digital sustainability markets are highly dynamic and include many submarkets. Our research groups several submarkets into a single quadrant, which means different types of providers are shown together, and not all providers in a grid are competitors; some serve as partners within a larger ecosystem. It is essential to read each quadrant’s Observation section and contact ISG to understand the different dynamics within each one.

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