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Why The $1.6 Billion EHS Software Market Will Be Unquelled By Recession Risks

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Why The $1.6 Billion EHS Software Market Will Be Unquelled By Recession Risks

According to the recently published Verdantix market size and forecast report, global market spend on EHS software will reach $1.57 billion in 2022 and grow at a CAGR of 11.9% to $2.7 billion in 2027. Our forecast leverages confidential financial information provided by prominent EHS software providers as part of our Green Quadrant benchmarking. These data points form an accurate market baseline upon which Verdantix builds in macroeconomic trends, vendor expectations and EHS software market influencers, to forecast the market. 

Our forecast identifies six conflicting forces that will shape the EHS software market through to 2027. Whilst most of these influencers will positively impact the market, the threat of a global recession is undoubtedly the biggest risk to EHS software spend growth. As with previous economic downturns, digitization plans tend to stagnate when firms enter survival mode. 

In 2023, Verdantix expects firms heavily affected by a potential recession, such as those in retail, consumer goods, construction, manufacturing and entertainment industries, to pause software upgrades, module add-ons, consolidation and digitization projects, as well as projects to migrate to real-time data streams. Data from our latest EHS global survey found that, for some firms, technology projects are hugely influential over proposed EHS budgets; 11% of EHS decision-makers consider projects to replace legacy systems to be the most influential factor in determining their 2023 EHS budget, further highlighting the influence of a recession over EHS budgets and technology spend. 

Fortunately, there are three good reasons why a recession will not substantially slow market growth. Firstly, EHS software is extremely sticky, meaning that even through recession there is a low removal or replacement risk. Data from our global survey back this up, showing that once firms have adopted a commercial solution, there is little intent to replace the chosen software. Secondly, EHS software is compliance-driven and so although it is viewed as a cost-centre in organizations, it is a necessity. Also, the value of EHS software is only expanding through the augmentation of traditional environmental management functionality to include net zero target management, TCFD and sustainability reporting, sustainability performance forecasting and sustainability metrics tracking. Thirdly, according to a Bloomberg survey of economists in July 2022, the probability of a US recession in the next year sits at around 50%. Although this value is uncomfortably high, a recession is not a foregone conclusion, and the US government are putting in place a series of measures to prevent this outcome including the implementation of a rate-tightening plan by the Federal Reserve to curb inflation. Understanding and monitoring the likelihood of a recession in the US is critical for what is the largest EHS software market, with North America accounting for 51% of global spend. 

To learn more about the other five forces that will define long-term EHS software market growth; spend segmentation by industry and region; and which industries and regions will grow the fastest through to 2027, read our latest market size and forecast.

 
Industry Analyst

Chris is an Industry Analyst in the Verdantix EHS practice. His current research agenda focuses on digital mental health and wellbeing solutions. Chris joined Verdantix in 2020 and has previous experience at EY, where he specialised in robotic process automation (RPA). He holds an M.Eng. in Engineering Science from Oxford University with a concentration in machine learning and machine vision.