I recently had a discussion with Sean Daley – Director of Consulting for ESG technology, consulting and data vendor Sphera. It was an interesting conversation in that Sphera is considerably larger, older and possesses a larger solution set than many of the newer ESG technology providers out there.
Who is Sphera?
Sphera is owned by the private equity firm Blackstone. Sphera is positioned as a growth company and it fits in well with Blackstone’s portfolio and their desire to reduce carbon emissions. Blackstone bought Sphera in July of 2021 for $1.4 billion.
Sphera is, in fact, consequential especially in ESG, EH&S (environment, health and safety) and ERM (enterprise risk management) circles. The company’s software has over one million users spread out over 7000 customers in 80 countries. The firm currently employs approximately 1300 people.
Sean indicated that the firm (or its predecessors) have been around since 1978 (i.e., the founding of predecessor firm Intermat). Since then, the company has seen a number of acquisitions/mergers.
In contrast to newer ESG firms, Sphera offers up a range of technologies and services. Where many ESG solutions simply help a firm report annual, aggregated or averaged data for regulatory reports, Sphera helps firms mitigate environmental, supply chain and safety risks with real-time and more precise data.
It’s interesting to look at Sphera’s product/service line. Sphera is one of the only ESG vendors with a pre-integrated risk management solution. I’ve discussed the value in integrating ERM, ESG and EPM (enterprise performance management) into a single solution set with other vendors as there are significant functionality synergies to be had. For example, the consolidation and calculations logic in EPM tools would be great in summarizing global data for inclusion in ESG reports. Likewise, some of the environmental reporting items (e.g., forever chemicals/PFAS) also carry with them material risks that should be managed.
According to Sphera, the Sphera software:
- Supports 300 SDS templates for 50+ countries
- Manages over 400,000 chemical substances
- Has 13,000 rules for automating regulatory specifications
- Supports over one-hundred U.S. military locations
The company has grown both organically and inorganically over several decades. It started as an EH&S (environment, health and safety) advisory firm and has expanded into several adjacent markets and services. In recent years, the company has invested in a cloud platform to tie together its numerous software products.
Sphera’s growth tracks with an accelerating increase in regulations, changing corporate desires and other factors. As Sean stated: “Things that used to be nice to haves are now must haves”.
One of Sphera’s recent acquisitions involved a company called riskmethods which is now known as Sphera Supply Chain Risk Management. That acquisition’s software shares some functional similarity to products from ESG solutions providers Assent and EcoVadis.
Historically, many of Sphera’s customers have been firms that make products. My review of their logo customers included a significant number of petrochemical firms. According to Sean, the company has been widening its appeal and now counts a number of financial services and commercial real estate firms as customers.
Their customers are often large, global entities. That could change some as more and more mid-market (and smaller) firms are getting requests to provide ESG data to their larger customers or suppliers.
Sphera’s core products/solutions have a different focus from many of its competitors. This difference may have something to do with the company’s origin story. Sphera started as a software, data and consulting firm and took their original on-premise software with data and services and brought it to the cloud in an integrated offering. The company is now helping firms decarbonize and move to net zero – an effort that takes data, services and technology. That’s not exactly what many of its competitors are doing. Many competitors are focused on helping firms meet Scope 1 and 2 reporting requirements. Reporting about a company’s prior ESG activities is NOT the same as doing something about them. And, doing something about them in real-time is an even more laudable, strategic goal.
Sphera’s solutions take advantage of a data lake which possesses over 15,000 ESG and other factors. That data informs more than regulatory reports. It can provide a number of industry, operational and other data points that customers can use to better direct their decarbonization, risk management and other initiatives.
In Sphera’s solutions, a customer can pull together information across the firm, in real-time, to better understand its current ESG and risk profiles. The software helps users highlight key operational/ESG/ERM insights. Next steps can be modeled and actuals are tracked to ensure expected results are achieved. The software also uses best practices, training content and more.
Sphera’s ESG approach is quite comprehensive and definitely more complete than the ESG reporting templates other firms offer. The real-time data focus is also a positive.
Another positive is Sphera’s ability to leverage knowledge gained from one customer project to another. Some of that knowledge appears in the data and metrics within its cloud-based data lake. Most competitors of Sphera’s do not possess such a capability or their knowledge base is limited to regulatory reporting matters.
Sphera’s growth has been steady but possibly a bit modest now that top executive interest in ESG is on fire these days. If you don’t believe me, just look at the money and headcount that major consultancies are pouring into their ESG practices. These investments are in the billion-dollar plus range with plans to grow a dedicated headcount in ESG business numbering in the thousands. It may be time for Sphera to put its growth plans into overdrive.
Scaling the company may be the firm’s near-term challenge if it is to continue to grab net-new market share at a rate equal to or greater than other competitors. Readers should anticipate that the firm will continue to grow both organically and inorganically.
Finally, the most impressive aspect of Sphera was the completeness of its solution set. They possess software to capture, report and analyze operational matters, tools to monitor progress against ESG goals, methods to manage ESG risks, consultants to help the firm transition to a net-zero existence, and more. It’s the breadth of the solutions that makes real change (not just regulatory reporting) possible.