Europe’s Demand for Digital Sustainability Solutions on the Rise. - ISG

Despite economic uncertainty and cost pressures, Europe’s demand for digital solutions that improve sustainability and governance continues to grow, according to a new research report published today by Information Services Group (ISG), a global AI-centered technology research and advisory firm.

The 2024 ISG Provider Lens Sustainability and ESG report for Europe says regulatory requirements, rising energy costs and broader stakeholder expectations are the primary drivers of demand for digital ESG (environmental, social and governance) solutions. ISG Research sizes the global digital sustainability market at approximately $21 billion and says the market should reach $34 billion by 2027, a compound annual growth rate of 16 percent, roughly three times that of the overall market.

“Avoiding the risk of fines and brand damage from noncompliance with regulatory requirements is certainly a motivator for many investments in digital sustainability solutions,” said Matt Warburton, Digital Sustainability lead for ISG. “However, research shows most European businesses want to become more sustainable anyway — provided they can find a way to do it profitably.”

Last year saw a flood of new providers and solutions entering the environmental services and sustainability markets. Now, ISG has begun to see some consolidation and recalibration of provider solution portfolios to better align with market demand. The application of AI and machine learning to accelerate the development and enhance the quality of sustainability solutions is now fundamental to this space, the report notes, with new GenAI capabilities distinguishing some providers from others.

Europe’s regulatory landscape continues to lead the world in support of sustainability initiatives. These regulations are forcing companies to become more transparent and demonstrate verifiable progress reaching sustainability goals, ISG says.

Economic conditions and energy security are also paramount considerations for sustainability initiatives, the report notes. The EU’s reliance on Russian gas has dropped from 45 percent to 18 percent in three years, and half of the EU’s electricity generation now comes from renewable sources, with wind power overtaking gas to become the EU’s second-largest source of electricity generation, behind nuclear energy.

Increasingly, European companies are implementing sustainability-integrated digital transformation programs, which now incorporate social sustainability factors. In addition, energy management systems that utilize digital twins, IoT sensors and machine learning are helping optimize energy consumption by facilities.

Jan Erik Aase, Partner and Global Leader, ISG

Organizations benefitting the most from sustainability initiatives include those utilizing industrial, engineering and manufacturing processes that involve physical, resource-intensive assets such as built infrastructure, fuel-consuming vehicles and other machinery.

“New providers not typically seen in the technology markets are entering this space, mostly offering OT and industry-specific solutions,” said Jan Erik Aase, partner and global leader, ISG Provider Lens Research. “These new entrants, including consultancies and engineering firms, have enhanced their digital capabilities, posing a challenge to traditional IT service providers.”

The report also explores other trends, including the growing skills gap among enterprises for sustainability expertise. While service providers continue to enhance their training programs, many are delivering inconsistent client experiences, increasing the likelihood of organizations insourcing their sustainability work.

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