Finance Industry To Increase Carbon Management Spending Fivefold

• Banks, insurers, private equity and investment managers will be spending $256 million on specialist software by 2027 compared with $51 million last year, Verdantix report forecasts.

• Financial services will account for nearly a fifth of a total investment of $1.49 billion on carbon management software.

Finance Industry To Increase Carbon Management Spending Fivefold

Banks, insurers, private equity and investment managers are driving a spending boom in carbon management as they gear up to meet regulatory standards, a new report from leading independent research and advisory firm Verdantix forecasts.

It predicts global spending on carbon management software across the finance industry will rise fivefold to $256 million by 2027 compared with just $51 million in 2021 as companies increasingly adopt Task Force on Climate-Related Disclosures (TCFD) regulations.

Financial services businesses need specialist software to track data and estimate Scope 3 carbon emissions stemming from their portfolio firms. The 2022 TCFD status report found 43% of financial institutions interviewed rated Scope 3 GHG emissions as a ‘very difficult’ recommended disclosure.

The compound annual growth rate among financial companies is estimated by Verdantix as 31% until 2027 while its Market Size And Forecast: Carbon Management Software 2021-2027 (Global) report forecasts the total market will grow at an annual rate of 28% to hit $1.49 billion by 2027.

Verdantix predicts that the EMEA region will be the fastest-growing and it will overtake North America as the biggest global market by 2025 and will be worth more than $650 million two years later.

North America will still grow strongly but Verdantix estimates SEC climate disclosure rules announced in March 2022 will not come into effect until 2025 for major quoted firms worth more than $700 million and 2026 for smaller publicly traded companies.

Technology, media and telecommunications firms’ spending on carbon management software is expected to grow strongly as well, mainly driven by net zero pledges and competitive pressures. Industries with fossil-fuel-intrinsic emissions and hard-to-abate emissions will grow more slowly.

Alessandra Leggieri, ESG & Sustainability Analyst at Verdantix said: “Combined regulatory and non-regulatory drivers will increase demand for carbon management software dramatically. Economic factors such as high inflation will have minimal negative impact on budgets because of strong regulatory pressure. Firms should start implementing carbon management software now to streamline their data collection and reporting. With an accurate understanding of their emissions, firms will not only comply with regulations, but also withstand reputational pressure and gain competitive advantage in their markets.”