ESG (Environmental, Social, and Governance) is top of mind across all industries, with the tech vertical often setting the pace. The problem is that delivering on ESG initiatives is difficult – how do you ensure optimum energy use? How do you manage waste and water? How do you contribute positively to the wider community? How do you uphold ethics and standards? And, across all these areas, how do you accurately and honestly measure against the goals and targets you have set so you can meet the demands of customers, investors, staff (especially new and younger talent), partners, suppliers, and governments?
This list of challenges offers a differentiation opportunity for larger service providers. Although their operational ecosystem is more complex, they have the resources to dedicate to ESG as a strategic imperative. They have established relationships with enterprises and other organizations. They also tend to have established software platforms and methodologies that can be used to track areas such as greenhouse gas emissions – although in many cases these may not be flexible enough to meet emerging needs. Their buying power means that they can include ESG targets in their contracts – and during the Big Quit/Great Resignation era, a strong ESG story will attract and retain talent when recruiting.
Lack of resources can make ESG problematic
By contrast, smaller service providers tend to lack resources to dedicate to ESG – even though they increasingly face the same challenges, demands, and regulations. Some will address the issue head on and find a way to establish their credentials by investing in or developing solutions, but this is both costly and challenging in terms of staff skills (technology, legal, commercial).
Others are likely to hope for the best to avoid the cost and complexity, but this will lead to market share erosion over time. The direction of travel, however, is clear – delivering against ESG metrics is set to become a cost of doing business, rather than a short-term differentiator for all sizes of business. Unless smaller service providers can establish a collective ESG framework or set of standards, they are likely increasingly to lose out to their larger competitors in the market.
Opportunities for growth
There is an opportunity, however, for established platform providers – be they hyperscale cloud or software platform providers – to develop hosted ESG solutions as a service (ESG-as-a-Service). The market is already out there and is set to continue to grow substantially.
In the short term, larger service providers have the depth of skills and resources to address ESG reporting challenges. However, with a growing awareness across all industries and organizations, over time the balance of power is likely to shift towards providers who can establish platforms that address the full value/supply chain, complemented by niche professional and managed services – perhaps akin to today’s cybersecurity market.