Verdantix: Why is ESG Reporting Software Spend on the Rise?
ESG reporting has become a crucial aspect of modern business practices, offering companies a powerful tool to demonstrate their commitment to sustainability and responsible governance.
As stakeholders increasingly prioritise environmental, social and governance factors in their decision-making processes, organisations are recognising the importance of transparent and comprehensive ESG disclosures.
The ESG reporting software market is projected to expand from US$1.3bn in 2023 to more than US$5.6bn by 2029, according to a new global report by Verdantix. This remarkable growth is driven by increasingly stringent regulations and mounting pressure from investors and stakeholders for transparent, auditable sustainability data.
The research and advisory firm reports that the companies leading the spend increase are often from industries with complex supply chains, such as manufacturing and wholesale/retail trade.
“Global ESG reporting software spend is projected to surge, peaking between 2026 and 2028, before stabilising,” says Kim Knickle, Research Director of the ESG & Sustainability practice at Verdantix.
“Over 50,000 firms globally are facing imminent sustainability reporting deadlines such as the CSRD, with significant risks of non-compliance, driving demand.”
Why is ESG reporting important?
Data-driven insights into sustainability performance provide businesses benefits in all areas of business.
The benefits of ESG reporting include:
- Enhanced financial decision-making
- Risk identification
- Innovation opportunities
- Sustainability performance
- Investor and stakeholder engagement
To streamline the complex process of ESG reporting, many organisations are turning to specialised software solutions.
ESG software automates data collection from various sources across an organisation, reducing the time and effort required for manual gathering. These digital tools validate and compile data into centralised databases, enabling companies to analyse trends, compare performance against benchmarks and highlight areas for improvement.
ESG software also facilitates the production of standardised reports aligned with various reporting frameworks, ensuring regulatory compliance and effective communication with stakeholders.
The future of ESG reporting software
Verdantix predicts that the ESG reporting software market will grow at a 26% CAGR.
Europe is expected to lead the charge, with a projected CAGR of 29%.
This surge is largely attributed to the implementation of the EU's Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).
These regulations will impact more than 50,000 firms in the EU and more than 1,000 non-EU organisations, necessitating robust ESG reporting solutions.
North America and Asia are not far behind, with projected CAGRs of 25% and 24% respectively.
In North America, US companies are grappling with evolving ESG reporting requirements at international, federal and state levels.
Meanwhile, Asia's growth is fuelled by the increasing adoption of International Sustainability Standards Board (ISSB) standards.
ESG reporting in the manufacturing and trade industries
The manufacturing and wholesale and retail trade sectors are expected to experience the highest growth rates, with CAGRs of 28% and 29% respectively.
These industries, characterised by complex supply chain networks, face mounting pressure to provide comprehensive, high-quality and auditable ESG data.
This demand is driven not only by general regulatory requirements but also by sector-specific legislation such as the EU CSDDD, the US Uyghur Forced Labor Prevention Act (UFLPA) and the Australian Modern Slavery Act.
Why is the ESG reporting software spend increasing?
The increasing demand for ESG reporting software is driven by several factors:
- Regulatory compliance: As governments worldwide implement stricter ESG disclosure requirements, companies are turning to specialised software to ensure compliance
- Investor pressure: Socially conscious investors are increasingly prioritising ESG factors in their decision-making processes, with ESG investing projected to represent 50% of US-managed investments by 2025
- Stakeholder expectations: There is growing public demand for corporate transparency and accountability regarding environmental and social impacts
- Risk mitigation: ESG reporting software helps companies identify and manage sustainability-related risks, enhancing their long-term resilience
- Operational efficiency: These software solutions streamline data collection, analysis, and reporting processes, improving overall efficiency.
Explore the latest edition of Sustainability Magazine and be part of the conversation at our global conference series, Sustainability LIVE.
Discover all our upcoming events and secure your tickets today.
Sustainability Magazine is a BizClik brand
