Battle For ESGtech Market Share Will Commence In 2021 With Huge Prizes For Winners
From 2021 onwards firms around the world will need to collect more granular data relating to their Environmental Social and Governance (ESG) performance. They will need to invest in information management systems, internal controls and external assurance to ensure the data is accurate, auditable and aligned with ESG standards. Firms will also need enterprise performance management systems which ensure CEOs can cascade ESG objectives into divisions and sites, monitor performance and as a result improve ESG performance. Investors will also need technology platforms to ingest ESG data from debt and equity issuers, from ESG ratings agencies and from ESG information providers which use AI algorithms to monitor unstructured data such as social media feeds. In short, in 2021 we will see the rise of a new technology ecosystem: ESGtech.
What is not clear is how quickly demand will ramp up for ESGtech, in which countries, in which industries and in which business functions. It’s not clear which suppliers will win the battle for ESGtech mindshare. One category that has accelerated their claim to the ESGtech market is financial information providers. Having bought GMI Ratings in 2014, MSCI acquired environmental fintech and data analytics firm Carbon Delta in September 2019. In March 2018, Institutional Shareholder Services (ISS) bought Oekom Research a specialist in ESG data and sustainable investment advisory. Moody’s bought Vigeo Eiris, a provider of ESG data and assessments, in April 2019. In January 2020, S&P Global acquired ESG data provider RobecoSAM having bought sustainability consultancy Trucost in 2016. In April 2020, Morningstar which already had a 40% shareholding, acquired ESG data and ratings agency Sustainalytics. In August 2020, Bloomberg announced it would offer proprietary ESG scores. In October 2020, Refinitiv acquired The Red Flag Group a provider of workflow and data relating to due diligence for bribery, corruption and ESG risk analysis. These financial information providers offer ESG cloud software and information products to CFOs as well as asset managers and asset owners. They are in pole position to win wallet share in ESGtech.
Software providers targeting the corporate world lag far behind the aggressive strategy of the financial information providers like MSCI and S&P Global. This reflects the much lower levels of ESG engagement by issuers compared to investors. Verdantix surveys in 2019 and 2020 of hundreds of corporate budget holders in sustainability and EHS roles have not identified a big uptick in planned spending on ESG information management and software. But demand will inevitably increase as the downside risks of weak ESG disclosure and upside opportunities of strong ESG performance become ever clearer to CEOs. Will EHS software vendors like Cority, EMEX, Quentic and Sphera move up the value chain and develop ESG dashboards and enterprise performance hierarchies? Will firms like Measurabl, Persefoni and UL with dedicated ESG and sustainability software offerings win mindshare? Will GRC vendors like Corporater, MetricStream and SAI Global storm into the ESG performance improvement market? Will Infor, Oracle and SAP leverage their huge installed base to dominate ESG information systems? Will providers of board portals like Diligent and Passageways exploit their privileged position with the C-suite to expand their capabilities into ESG data and assessments? Or will new ventures like Spherical Analytics rise to the top? The Verdantix view: only software vendors who launch their ESGtech product development in 2021 will be in a position to win big.