Verdantix: Why is ESG Reporting Software Expected to Boom?

Over the past two decades, sustainability reporting has evolved from a voluntary corporate initiative to a core business requirement.

The shift stems from increasing recognition of climate risks, social inequality and governance failures across global markets.

In 2000, fewer than 100 companies worldwide issued sustainability reports - by 2020, this number had grown to over 90% of S&P 500 companies producing detailed Environmental, Social and Governance (ESG) disclosures.

This transformation coincides with mounting pressure from investors, who now manage over US$35tn in ESG-focused assets globally.

Regulators worldwide have responded by implementing stricter reporting requirements, with the EU’s Corporate Sustainability Reporting Directive representing the most comprehensive framework to date.

The complexity of these requirements, combined with the need to gather data from disparate sources, has created demand for specialised software solutions.

A new analysis from Verdantix, a research firm specialising in environmental and sustainability technology, reveals substantial growth in the ESG reporting software market.

The report examines how digital tools are reshaping corporate sustainability reporting and projects substantial market expansion over the next five years.

Rising demand across industries

The ESG reporting software market is expected to grow at an annual rate of 26%, according to Verdantix.

Europe is predicted to lead this expansion with an estimated growth rate of 29%, largely due to the implementation of the EU's Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

As a result, these regulatory frameworks are set to affect over 50,000 firms within the EU and numerous others outside the bloc, necessitating robust ESG reporting systems.

Meanwhile, North America and Asia are also expected to see significant growth rates of 25% and 24% respectively, driven by evolving regulatory landscapes and the adoption of standards by the International Sustainability Standards Board (ISSB).

Kim Knickle, Research Director of the ESG & Sustainability practice at Verdantix, says: “Over 50,000 firms globally are facing imminent sustainability reporting deadlines such as the CSRD, with significant risks of non-compliance, driving demand.”

Benefits of ESG reporting software

ESG reporting offers numerous benefits to businesses, including improved financial decision-making and risk identification.

ESG metrics also foster innovation and boost engagement with investors and stakeholders, ultimately improving sustainability performance across various sectors.

Many organisations are turning to specialised ESG software solutions to meet these demands.

These applications automate data gathering from various organisational divisions, significantly reducing the effort and time typically involved in manual collection.

Such software plays an important role in data validation and assembly, allowing firms to conduct thorough analyses, set benchmarks and identify areas requiring enhancements.

Therefore, advanced ESG reporting tools aid in creating standardised reports which align with multiple framework requirements, ensuring compliance with regulations and facilitating effective stakeholder communication.

Industry-specific growth

The manufacturing and wholesale/retail trade segments are additionally projected to witness the highest growth, with compound annual growth rates of 28% and 29% respectively.

These sectors, characterised by complex logistical demands, are under increasing pressure to deliver comprehensive, high-quality and auditable ESG data.

This growth is driven by broad regulatory requirements and specific legislations such as the EU CSDDD, the US Uyghur Forced Labor Prevention Act (UFLPA) and the Australian Modern Slavery Act, making the necessity for effective ESG solutions in these industries more acute.

Kim concludes: “Global ESG reporting software spend is projected to surge, peaking between 2026 and 2028, before stabilising.”

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