How enterprise buyers will navigate the exploding Climate & Sustainability tech ecosystem.
“How do we embed sustainability into our organisation without impacting growth?” This is a question being asked by executives and boards across the planet, and certainly one I commonly get asked.
There’s no simple answer to that question, but a critical element is enabling people across the organisation to make decisions that are informed with timely and relevant sustainability data. Thus a key long-term objective for most enterprise clients is embedding sustainability principles & data into their strategy, operations and BAU processes., so that they can build competitive advantage through sustainable practices, products and services (as well as automating more of their ESG disclosure requirements).
Most organisations have invested heavily over the last decade in platforms and tools which provide the ability to collect, analyse and action data - sustainabiliy data is the next frontier.
In this blog post I look at how enterprise organisations evaluate & adopt climate & sustainability (C&S) technology solutions, and the journey they will go on to diffuse that data across the organisation - so that they can ultimately make business decisions informed by relevant and timely C&S data.
What’s interesting to note is that there are now multiple stakeholders at the table - not just the CSO/Sustainability team, but also the CFO function (for regulatory reporting purposes), Corporate strategy, Investor Relations, and also the CIO and data & technology teams, who will be tasked with operationalising C&S data.
What’s the difference between ESG & C&S solutions? Essentially they target different buyers and are the flip side of the same coin. C&S solutions are developed for corporate buyers, ESG tech is primarily developed for Financial Services orgs - see the section at the bottom of this blog for more info..
The 3 Tiers of Climate & Sustainability tech & data providers
In response to data strategy questions from clients, I created a visual that shows 3 tiers of software (or hardware) providers, and how they interact from the point of view of an enterprise organisation. The 3 tiers are:
Tier 1: Enterprise platform providers (Microsoft, AWS, Google, IBM, Salesforce, Oracle, SAP, Snowflake, ServiceNow etc)
Tier 2: Best-of-breed Climate & Sustainability solutions (+ procurement & EHS solutions that are moving into the ESG market)
Tier 3: Data providers (such as satellite, sensor data, emissions factors databases, utility & energy data) that provide the data that Tier 1 & Tier 2 need.
In my experience, organisations start out buying best-of-breed solutions (Tier 2), and over time the integrate the data into their Tier 1 enterprise applications.
Tier 3 solutions provide the raw data that Tier 1 & 2 providers need in order to automate core parts of their solutions.
Climate & Sustainability tech & data ecosystem, broken out by how they interact.
Note: The infographic above is relevant only for corporate organisations - banks and other FinServ orgs would be more interested in the market for ESG solutions, to help inform on their investment decision making. See the section at the bottom of this blog for more info.
The vendors in Tier 2 & 3 may be perceived by some as market leaders, but of course there are many others that may be applicable/better for certain sectors, geographies, customer size/revenue etc.
Explosion of climate & sustainability solutions
Over the past couple of year there has been an explosion of new solutions and technology within the climate & sustainability (C&S) ecosystem, making it very confusing for organisations to know where to begin the tech & data journey to help meet their disclosure requirements and decarbonisation commitments.
When faced with new regulatory requirements or shifting market demand, enterprise organisations will usually evaluate the marketplace of possible solutions and benchmark their existing providers against best-of-breed solutions.
Very often enterprise orgs choose to buy the bells and whistles that best-of-breed solutions provide - at least until the market has matured and core features & functions have diffused across the market (which can take years).
As the C&S tech market is so emergent, many of those existing providers haven’t geared up to develop or offer C&S solutions , and so enterprise orgs have had no choice but to evaluate a raft of best-of-breed solutions for their needs.
Tier 2: Best-of-breed solutions
In the infographic above, I have bracketed best-of-breed solutions across the C&S ecosystem into what I’ve termed ‘Tier 2’
These solutions typically include:
Carbon accounting solutions
ESG reporting solutions
Carbon offset marketplaces (for Nature & Technology based solutions)
Materiality software
Lifecycle and Product Lifecycle Analysis (LCA, PLA)
DEI & CSR solutions
Social & human rights solutions
Waste & water management software
Digital Measurement, Reporting & Validation solutions (AKA dMRV - satellites, drones, sensors etc)
Asset lifecycle & circularity solutions
Procurement software that has partnered with C&S vendors or is developing ‘ESG’ modules (particularly relevant given scope 3/ supply chain emissions)
Environment, Health & Safety (EHS) software vendors that are developing/acquiring carbon accounting and other ESG solutions
PropTech (for Commercial Real Estate) - I’ll dive into this in another blog post.
Biodiversity & nature conversations are starting to pick up - particularly with TFND on the horizon, but I’ve not added them to the infogrpahic just yet.
Over time, enterprise organisations will integrate their best-of-breed Tier 2 solutions into their core (Tier 1) enterprise platforms.
It’s often observed that organisations start out buying best-of-breed solutions in a particular software segment and over time they integrate those tools and data into enterprise platforms, such as those provided by the likes of Microsoft, Oracle, SAP, Salesforce, Snowflake, Google, AWS, ServiceNow etc - democratising access to that data across the organisation and embedding that data into existing workflows and processes - in order to aid better decision making.
We are likely to see the same pattern as the C&S ecosystem matures, where organisations buy best-of-breed of e.g. carbon accounting, LCA & ESG reporting solutions from Tier 2 providers, and over time they want to integrate those tools and data into their business workflow & decisioning systems, opening up the data across their organisation and helping to operationalise sustainability into BAU..
We should expect Tier 1 enterprise platforms to start developing use cases that showcase their partnerships with best-of-breed Tier 2 solutions.
We are already seeing one example of this with organisations that are developing ‘ESG data lakes’ in order to collect, process & analyse ESG data and facilitate data integration into existing workflows and enterprise applications. AWS, Microsoft, Google, Snowflake & IBM all have solutions that meet this use case.
Tier 1 providers are building out their own C&S solutions
Additionally, some Tier 1 providers have already developed and continue to build out solutions which span the C&S spectrum. Microsoft and Salesforce in particular have developed a range of C&S solutions and will likely continue to build these out.
What should be noted is that enterprise buyers would likely need to engage Systems Integrators (SI’s) to deploy Tier 1 C&S solutions across the organisation, and ensure they have staff that can manage these systems - whereas Best-of-Breed solutions are typically SaaS offerings that are closer to a plug-n-play offering (although they may also require some services, such as data collection etc).
Gradually, core features & functions are offered by Tier 1 providers
As the market matures over a number of years, Tier 1 providers increasingly provide similar core capability and functionality to their customers, and Tier 2 providers will need to continue to innovate, move into adjacent markets or engage in M&A to survive. This dynamic will be no different in the C&S ecosystem.
Vendors moving into C&S from adjacent markets - such as EHS & Procurement vendors
We are already seeing Environment, Health & Safety (EHS) vendors, as well as procurement software vendors (Tier 2) moving into the C&S & ESG market, and they are likely to engage on significant M&A activity to be able to provide compelling C&S and ESG solutions to their customers in the sectors that they operate.
In terms of decarbonisation commitments, because procurement teams are often one of the first teams that are tasked with getting a handle on Scope 3 emissions data, procurement software vendors will likely move aggressively into the ESG space to satisfy demand from customers for supplier ESG data (and specifically carbon emissions data). This may be through integration with carbon accounting vendors (perhaps with vendors like Climatiq who provide emissions data via API ) or through product development or M&A.
Tier 3 will engage in M&A as the market evolves.
Tier 3 solutions provide raw data (such as emissions data from satellite & sensor data, emissions factor databases and utility & energy data) to both Tier 1 and Tier 2 providers and will continue to evolve as the market evolves.
Sometimes corporates buy data directly from Tier 3 providers - but in my experience this is less common outside of Financial Services orgs who want to model eg. climate data within their systems.
New technology is lowering the barriers to entry and making it commercially viable, and there’s a lot of investment in this space.
As costs come down as technology and automation improve, there will be signficant M&A activity as the market matures. and incumbents strive to reach a dominant position.
Summary
Lessons learned from 20 years in enterprise tech: I’ve spent 20 years working with enterprise organisations as they evaluate, buy and roll out both hardware and software solutions across their organisation, and there are common trends across this whole lifecycle of software/hardware adoption that are applicable to the emerging Climate & Sustainability tech ecosystem.
In summary, enterprise orgs are just starting their C&S tech & data journey, and I would be very surprised if this market doesn’t evolve in similar patterns to every other software market!
What is perhaps different this time is the complexity of the data journey - particularly if we look at the data we will need to accurately model & measure biodiversity and nature in all her resplendent beauty.
What’s the difference between ESG and C&S? I’m using the term Climate & Sustainability (C&S) tech rather than ESG because ESG tech/data is usually developed for and bought by financial services organisations, and used to inform on their investment decision making (ESG also usually means different things to different people, and I’ve been sat in meetings where there is no common consensus on what ESG actually refers to).
The ESG data market is actually the flip side of the C&S market - because ESG tech & data providers collect ‘ESG signals’ from organisations across the market to help their Finserv customers rate & benchmark companies on ESG. In theory, the more C&S data an organisation has to back up its ESG narrative, the better its ESG score will be. We’ll expand on this and cover banks and other FinServ needs in another post.
What does sustainability tech refer to? Equally, ‘Sustainability tech’ covers a broad spectrum, including social, water & waste, Human rights, biodiversity & nature, circularity etc