A growing market for supply chain sustainability software is being driven primarily by increasing scrutiny from regulators and stakeholders of ESG performance, as well as a greater consideration of ESG and sustainability issues as potential threats to supply chain resilience, according to a new report from analyst firm Verdantix.

The report, “Green Quadrant: Supply Chain Sustainability Software 2024” finds that software vendors are focusing on three key areas — sustainability reporting; risk management; and supplier engagement and collaboration — in order to advance ESG reporting and sustainability performance in the supply chain.

“Organizations cannot meet their ESG and sustainability goals without untangling the intricacies of their supply chains,” said the authors. “Data complexities are driving the need for solutions that help firms improve visibility throughout their supplier networks, assess exposure to hidden risks and ensure collaboration with suppliers.”

Verdantix assessed 15 software vendors using a 54-point questionnaire, two-hour live demonstrations by vendors and interviews with 20 supply chain sustainability software customers across a variety of industries, spanning manufacturing, consumer goods, consulting services, and oil and gas. The resulting analysis was based on the proprietary Verdantix Green Quadrant methodology, which is designed to provide an evidence-based, objective assessment of vendors offering comparable products or services.

The Verdantix research finds that the supply chain sustainability software market was worth $1.7 billion in 2023 and is expected to grow to $6.8 billion in 2028, at a 32% CAGR. 

Amongst the prominent trends in the supply chain sustainability software space, the Verdantix report concludes that political and regulatory events are driving the need for supply chain sustainability software. For example, under the EU’s Forced Labor Regulation, businesses must dig deeper into their supply chains to avoid products suspected of being made with forced labor. This is pushing firms to obtain better insights into the lower tiers of their supply chains located in the Asia-Pacific (APAC) region, where there are over 15 million people in forced labor.

Additionally, businesses require digital strategies that match their internal ESG maturity level. Verdantix says that initiatives to improve sustainability in supply chains provide an indication of how organizations perceive the business impact of ESG issues. For example, if a firm perceives supply chain sustainability as a driver of business resilience, its buyers prioritize digital tools that allow for the integration of sustainability factors into operational transformation projects and business strategy decision-making.

The report also noted that M&A activity and organic investment both demonstrate healthy market growth in supply chain sustainability software firms. broaden sustainability offerings. For example, in 2022, Position Green merged with four boutique sustainability advisory firms, including ESG due diligence provider Klinkby Enge, to engage sustainability advisory services. In 2023, Vista Equity Partners invested in Benchmark Gensuite to accelerate growth and unify its product suite. In January 2024, Sphera acquired SupplyShift to expand its supply chain mapping, scoring and traceability capabilities, while in September, EcoVadis acquired Ulula to enhance its on-the-ground worker engagement capabilities.

Furthermore, partnerships with software and data providers and consultants are expanding the capabilities and reach of these software firms. Avetta, for example, partners with Workiva Carbon to support suppliers’ management and reporting of carbon emissions. Software providers also partner with consulting services firms to support implementation, access to granular sustainability data and advanced analysis, Verdantix says. IBM, for instance, relies on Capgemini and Cognizant as implementation partners, while IntegrityNext partners with KPMG and TATA Consultancy Services to support the delivery of ESG-related supply chain decision-making.

For the purposes of this report, Verdantix defined supply chain sustainability software as: “Software that offers supply chain ESG and sustainability data collection and management functionality, to inform reporting, risk management, and supplier development and engagement.”