The ESG solutions market is getting overcrowded

Here’s a note from Nawar Alsaadi (and here is a follow-up note):

The market for sustainability software such as those focusing on carbon accounting and ESG management has become extremely crowded. I speak with many ESG/sustainability professionals every week, and many of them are overwhelmed by the amount of outreach by sustainability startups. Just last week, I had a CSO of a major company tell me that she was approached daily with a novel carbon accounting solution on Linkedin. Meanwhile, a senior sustainable investing executive told me that he can’t keep up with all the ESG data providers. As a result of this, sustainability executives are tuning out all incoming ESG solutions messaging.

AI generated content is making things even worse. Two weeks ago, Gartner made the following prediction on AI content “By 2027, organizations will shift 80% of marketing content spend to GenAI services, but effectiveness will plummet by 50% due to overwhelmed consumers.”

The biggest challenge for ESG/sustainability professionals is that they can’t tell who’s real and who’s fake. They can’t differentiate between who has a real solution to their challenges, and who’s exploiting their needs to sell them empty promises! Going back to my conversation with the CSO earlier this week, she said that she couldn’t find the time to view a demo and properly assess each solution presented to her, if she did that, she would do nothing but be on demo calls all day long.

Sophisticated buyers will generally have an RFP process, but who to include in this process, and whether all suitable vendors will have a chance to participate is an open question. Basically, RFPs are still constrained by the previous issue, the plethora and fragmentation of ESG solutions providers.

Naturally what happens when people get overwhelmed is that they tend to adopt a heuristic approach to solving the problem. Consequently, buyers will favor buying from established companies even if those vendors don’t have the best solution to their problem. Alternatively, buyers will favor companies they have already worked with in some capacity, thus conflating familiarity with competence. Or, they may favor solutions they’ve come across recently over better solutions that they have seen some time ago, among many such short cuts.

Sustainability startups need to take note of the above, and invest considerable time to develop realistic go to market strategies, especially around marketing and target clients outreach. The solution to this issue must go beyond publishing one more guide on how ESG professionals should choose ESG software. An ESG company publishing its own ESG software selection guide is no different from a chocolate maker issuing their own guide for healthy eating. The solution to this issue will take more than another guide that no one will read except for your competitor as they prep to publish their own version.