Given Sustainability Assurance is a Small, Slow-Growth Segment, Why Do Professional Services Firms Bother to Sell Into It?
Since 2008, Verdantix has covered the market for sustainability assurance. This catch all phrase describes a wide variety of assurance and verification services relating to sustainability reports, underlying data and controls. Over the years segments of the market have flared into life such as the assurance of Carbon Development Mechanism (CDM) projects and more recently the US conflict minerals rule. But these growth spurts have been snuffed out. Our recent forecast for the sustainability assurance market points to a market likely to grow at just 4% per annum over the next 5 years.
What’s holding the market back given the drumbeat of announcements about the constant growth of firms providing data to the CDP, disclosing sustainability performance using the GRI G4 framework and joining SASB’s industry groups? The short answer, is that finance and sustainability leaders have better use for their cash. CFOs wouldn’t spend what they do on financial audits if it was not a legal requirement. So there is limited appetite to spend on a sustainability audit. Careful study of the US regulation on conflict minerals and the EU direction on non-financial reporting shows that what requirement there is for assurance of disclosed data and management systems is weak. Hoping that firms will spend more on sustainability assurance in the absence of tough compliance rules is dumb.
Right now, the majority of heads of sustainability worldwide couldn’t fund assurance projects anyway. According to our annual global survey of 260 heads of sustainability in 13 countries, only 23% entirely fund assurance spending and only 29% have full authority for final decisions. And expectations are not positive. Only 9% of survey respondents expect their assurance budget to increase by 10% or more. A solid 65% expect their assurance budgets will stay flat in their next financial year. No surprise then that we see the market growing from $133m this year to just $160m in 2020.
Why do the big audit firms continue to play in this small, slow-growing segment? After all, Deloitte booked $34.2bn in its last financial year. If you assume Deloitte accounts for 1/6 of the sustainability assurance market ($22m) then in 2015 assurance amounts to 0.0000001% of total bookings. A single financial systems program management contract would be bigger than that. The truth is that providing sustainability assurance is a potential back door into winning financial audit work. For now, this will continue to be a defensive play for auditors. For the verification providers like Bureau Veritas and ERM CVS it’s a more logical extension of their EH&S certification services.