CIOs turn to ESG tech as part of sustainability leadership

Why more companies are buying ESG tech

More than 70% of surveyed analysts and investors across the globe agreed that companies should incorporate sustainability directly into corporate strategy, according to the "Global Investor Survey 2024," published by PwC in late December last year.

Sustainability is a broad and complex category that, for most companies, will require technological support, especially in the areas of gathering and reporting ESG data.

Like many companies, technology consulting firm UST, headquartered in Aliso Viejo, Calif., has experienced a growing need to track and report its environmental impact, said Krishna Prasad, CIO and chief strategy officer of UST. It's a need driven by both more regulatory requirements and partner demands for such data. In particular, the company must measure and report its emissions from greenhouse gases (GHG) to comply with regulations in the European Union and elsewhere.

UST is also receiving more demands for information across all three areas of the ESG triad, Prasad said. Those demands, in turn, have created the need for ESG reporting software to share strategic sustainability data with government agencies, partners and internal executives.

With so much riding on such tech, CIOs like Prasad play an essential role in building the business case for ESG software.

More organizations require that their CIOs take a leadership role in guiding ESG technology buying and development as a means of collecting and reporting sustainability data to stakeholders, according to Gartner's "2024 market guide for ESG reporting and management software."

And just as in other areas of enterprise tech, the consequences of getting it wrong can be substantial.

Making the sustainability tech business case

As in any situation where CIOs seek a win-win, they need to first seek to understand instead of bring preconceived ideas and understand the business case for ESG software.

CIOs who want to build a successful business case for sustainability technology or the set of capabilities ESG software offers should learn what's driving the need for that technology in their organization, said Chet Geschickter, VP analyst at Gartner.

According to him, the need to comply with regulations is the prime driver for most. Many organizations have voluntarily reported ESG matters to stakeholders, including government agencies, for years, so they have a history of collecting and collating ESG data. However, to meet regulatory requirements, they generally must do a better job of collecting and reporting data.

"In general, regulations require a higher standard of reporting than voluntary best-efforts-type reporting," Geschickter said.

Sustainability software provides two main benefits, he noted. First, it provides improved compliance with regulations, including more timely and higher-quality reports. That's a big benefit, particularly in cases where audit and assurance are required -- as the higher quality can potentially lower the costs associated with audit and assurance as well as decrease the likelihood that issues will be flagged. Second, it reduces the administrative overhead in complying with regulations -- a cost sometimes referred to as "compliance burden" -- which many companies still do via spreadsheets and similar costly labor-intensive efforts.

Some organizations also have demands from their business partners to report on their environmental impact and sustainability efforts, he said. Some also see their sustainability or overall ESG records as market differentiators, further driving the need for software that is capable of tracking, reporting and analyzing ESG data.

Sustainability software can have other uses.

Many organizations are leaning on software as a project management tool, using it to not only meet reporting obligations but also to track improvements in their environmental, social and governance programs, said Lukas Kay, senior director of the ESG advisory practice at FTI Consulting. When used that way, organizations can better strategize how to align ESG programs with their business objectives -- whether that's using environmental stewardship to differentiate themselves in the market or reducing energy consumption to reduce emissions and costs.

Specifics of the CIO's role

IT leaders are critical in supporting organizational sustainability initiatives. This involves everything from understanding the doubled-edged nature of tech to assessing which software will deliver a return on investment.

CIOs should understand what's driving their organization's sustainability program as they build a business case for sustainability or ESG software, Geschickter said. From there, CIOs should calculate how software costs are offset by the software's ability to lower the risks associated with noncompliance and the costs of data gathering, analyzing and reporting.

There's a lot of value that the CIO can bring to the table, but in general it works best when there's a partnership between the sustainability function, finance, compliance and IT.

Kay had a similar take, noting that CIOs must also understand what data the organization requires to meet its compliance and strategic objectives and then work with executive colleagues to select the tools that can access, gather, analyze and visualize that data.

"The sustainability teams are going to be the experts on what the objectives are and why, but the software may be foreign to them, and it's here where CIOs can educate them to understand the software and the capabilities and how it fits into their objectives," Kay said.

Buying team collaboration is key, which the CIO can help foster.

"There's a lot of value that the CIO can bring to the table, but in general it works best when there's a partnership between the sustainability function, finance, compliance and IT," Geschickter said. "The CIO needs to work with their business partner or business partners on the overall business case, but especially work with their business partners on the costs -- and that's costs, plural."

Geschickter noted the cost of the software itself, its implementation and maintenance costs, and costs associated with gathering, accessing and governing the data required for ESG reporting. Collaboration between the CIO, sustainability, compliance and others helps ensure the organization implements the right software capabilities for its needs.

"I have seen several times 'buyer's remorse' where [an organization is] years into a software package they picked without IT, and they have a list of complaints tied back to the technology. And that's because there was inadequate due diligence in selecting the technology," he added.

Software options

Organizations have a plethora of software options to support their sustainability efforts.

Carbon accounting software is one of the most popular options.

Carbon accounting and management software is a broad category whose tools facilitate emissions data collection, analytics and reporting across Scope 1, 2 and 3.

ESG management and reporting software provide a broader range of capabilities that help support voluntary and mandatory ESG requirements and provide decision support and analytics capabilities. For example, beyond capturing data regarding different types of GHG emissions, ESG software might include other capabilities. These include support for initiatives such as more sustainable waste management; diversity, equity and inclusion (DEI); charitable giving; and ethics and anti-corruption.

Beyond those two software classes, some enterprise platforms offer modules that can provide some capabilities related to ESG tracking and reporting -- either as standard features or add-on modules, Kay said. In addition, some organizations are building such capabilities in-house, finding that choice will deliver the required functionality without adding unnecessary complexity and cost.

Costs and ROI

Research shows that organizations continue to support sustainability despite political headwinds and are making significant investments in both categories of software.

The global ESG software market was worth around $940.7 million in 2023 and is likely to grow at a compound annual growth rate (CAGR) of 17.3% from 2024 to 2030, according to "ESG software market size, share and growth report, 2030," published by Grand View Research.

The global sustainability management software market size was at around $2.75 billion in 2023 and is likely to grow at a CAGR of 16.7% from 2024 to 2030, according to the "Sustainability Management Software Market Report, 2030," also published by Grand View Research.

IT leaders can help translate sustainability tech costs against expected outcomes.

CIOs should help their executive colleagues calculate the software costs and the ROI, positioning the adoption of sustainability or ESG software tools as an investment that delivers through improved compliance, lower risk and increased efficiencies while also helping integrate and leverage sustainability with strategic objectives, Kay said.

For UST, Prasad said he and his colleagues started with the organization's objectives for its sustainability program -- as well as its social and governance initiatives -- and then identified what data would be required from which systems.

Then they focused on finding software that would support the environmental and social pieces, recognizing there was a gap between existing and needed technology in those two specific areas, though not for governance.

They next evaluated commercial software options, which didn't fit the company's needs, Prasad said.

"What we found is that it was difficult for us to justify the spend on those," he said, explaining that they brought more complexity and cost than warranted for UST's needs.

That's why UST has opted to build the needed capabilities in-house, Prasad said.

As with other software categories, each business case -- and subsequent choice -- will depend on the organization's unique needs.

Mary K. Pratt is an award-winning freelance journalist with a focus on covering enterprise IT and cybersecurity management.