5 key ESG insights for CIOs and IT leaders

ESG is a more critical factor for CIOs and IT leaders. Learn why they're prioritizing ESG as a factor in software purchasing and whether everyone prioritizes it equally.

IT leaders are embracing the principles of sustainability.

That's one of the key takeaways from "The Role of ESG Programs in IT Decision Making," published in September 2022 by Enterprise Strategy Group, an IT research and strategy firm and a subsidiary of TechTarget.

Driven by a variety of factors, companies across the globe are prioritizing environmental, social and governance (ESG) goals. What doesn't get as much attention? ESG is also becoming more important in software purchasing decisions, as CIOs and other IT leaders seek to support their organization's sustainability goals.

To that point, here are five key findings from the "Role of ESG" report.

1. ESG has an influence on software buying teams

Despite some investment headwinds, a post-pandemic recession and sometimes embarrassingly retrograde right-wing politics, a solid 93% of IT leaders said they expect suppliers' ESG performance will increasingly affect software buying decisions.

Some of this emphasis is due to regulations around any of the following:

  • Carbon emissions and other climate data disclosures.
  • Supply chain sustainability.
  • Energy efficiency.
  • Water usage.

However, externally driven motivations are not the sole reason IT leaders care more about suppliers' ESG performance. Many leaders care more about these issues or are taking their cues from organizational leadership.

2. Leaders at younger firms are more likely to embrace ESG

One valid predictor of how fervently your organization is pursuing its ESG goals is the age of the firm. Research found that leaders at younger firms -- those under 10 years old -- are twice as likely as those at longstanding firms -- those over 50 years old -- to say that the impact of ESG is significant today and likely to have strong impact on future purchases of IT goods and services.

These newer firms have ESG in their DNA. For them, the costs of switching from a legacy infrastructure to a more modern and efficient one are likely much lower than, say, an established multijurisdictional financial institution with a significant legacy infrastructure investment.

3. ESG is a corporate branding exercise

ESG compliance helps your company's brand.

It turns out that the leading reason organizations invest in ESG initiatives is "brand." Translation: We will look good by doing good.

And you know what? It works even better than they think. Forty percent of respondents said that the reason they're embracing ESG is to improve the brand. Shockingly, the percentage of organizations that said they actually got a brand lift was higher, almost 50%. That makes brand lift the top measurable benefit of implementing -- and talking loudly about -- ESG.

As an IT executive, recognize that your internal ESG efforts and helping your organization achieve its ESG goals reflect positively on your firm's perception by buyers.

4. ESG is expected to cost 6% more

None of us expect that the benefits of ESG will be free. In fact, IT leaders said they expect that their firms will pay, on average, 6% more for products and services with superior ESG attributes compared to that same product without an ESG advantage.

While we are willing to pay somewhat more, there does seems to be an upper limit to the value of ESG differentiation. None of the hundreds of respondents to the survey indicated that they would pay 20% more for a product that differed solely on ESG attributes. I consider this to be a sign of maturity: a reasonable willingness to pay for the value brought by ESG compliance without irrational pricing expectations -- a functioning market.

5. IT vendors are responding

Overwhelmingly, the programs of IT suppliers -- vendors who sell IT goods and services -- matter to those of us who are involved in deciding what to buy and from whom. Of the IT leaders surveyed in "The Role of ESG Programs in IT Decision Making," 45% said that the ESG programs of suppliers have or will have a significant impact on IT purchasing.

Vendors have taken note of IT leaders' growing concerns. For example, Cisco has introduced a new Carbon Emissions Insights feature, found within the Webex Control Hub, to help organizations measure and reduce the emissions impact of their collaboration devices. Dell is offering enhanced power management capabilities in its OpenManage software. And Hitachi Vantara is modernizing its storage offerings to reduce energy consumption. These are just a few IT market developments that reflect the growing importance of environmental sustainability.

IT leaders would do well to ensure that internal sustainability programs get their proper priority. It also means that the software buying team must thoroughly vet suppliers for the validity of their ESG claims and ability to support ESG goals.

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