Index Insider: The ESG Effect on Sourcing Contracts

Hello. This is Alex Bakker and Matt Warburton standing in for Stanton Jones with your weekly briefing on what’s important IT and business services.
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The last five years have seen environmental, social and governance (ESG) objectives grow in importance among large enterprises. In the last two years, the number of mentions of ESG on Fortune 500 earnings calls and the number of companies reporting on ESG have hit record levels.
For many enterprises, IT is a major source of energy use and, by extension, carbon emissions. As companies proceed with digital transformation, the enterprise IT footprint is growing faster than ever – and many are looking at their IT portfolio with a critical eye on energy consumption and emissions.
Over the last month, we surveyed our advisors to understand if and to what extent ESG factors are affecting deals. The results make it clear that companies are including environmental concerns in their choices of IT services providers. Data show 67% of advisors said tracking energy consumption and reducing energy consumption and carbon footprint were either moderately, very or extremely important to clients. More specifically, 16% of advisors surveyed say the overall reduction of energy use is a major criterion in their advised deals; 14% of advisors say the deals they advised aim specifically at reducing carbon footprints (see Data Watch).
While these percentages are small now, they will undoubtedly grow as more companies contract for new services, renew older contracts and include corporate ESG goals and standards into their criteria. We expect the criteria themselves to become more sophisticated over time as ESG concepts become more defined, standardized and regulated – led by EMEA and the financial sector.
ESG measures are becoming more concrete and comparable across industries, and we expect that more enterprises will incorporate them into their contracts in the future. Given that ESG measures are already affecting the outcomes of our transactions, we also see service providers beginning to lead with their own ESG achievements to help sway potential buyers and pass those requirements on to their own suppliers.


Chart showing to what extent did the following environmental goals influence the outcomes of an ISG project


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About the authors

Alex Bakker

Alex Bakker

Alex leads the Primary Research Team where he focuses on study design, panel research, and interview based research for ISG. In addition to leading the Primary Research practice at ISG, Alex also serves as the lead analyst on provider pursuit effectiveness, and helps IT service providers understand how they can improve performance in the competitive process. 
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Matt Warburton

Matt Warburton

Matt Warburton is a Principal Consultant and ANZ Sustainability Lead at ISG. He joined in 2020 to drive the creation and growth of ISG’s ESG strategy and services, across all aspects of ISG’s existing services and the broader ecosystem of technology suppliers. He specialises in environmental sustainability and works with clients to embed sustainability into their technology strategies, digital transformations, operating model designs and sourcing strategies.