Identifying ESG Trends in State and Local Government Contracting

With Environmental, Social, and Governance (ESG) focus areas becoming a topic of discussion across governments and legislatures, the analysts behind Deltek’s GovWin IQ platform of government market intelligence have worked to analyze what impact ESG themes may be having on the procurement of environmental and social related initiatives at the state and local level.

The continued effects of climate change are causing state, local and education (SLED) governments to seek more solutions to mitigate the impact of their contributions. States are investigating the best ways to do this to better utilize existing resources and assets while also converting to more green or sustainable ways of producing energy. Along with the environmental concerns has been the valuable resource of water and its quality; and thus water resource management has become more important as this finite resource is threatened due to climate change and contamination.

How Governments are Funding State and Local Environmental and Social Opportunities

Governors have consistently included environmental and social funding as some of their top priorities in their annual budgets. The annual “state of the state” speeches in 2023 were no different. As governors prioritize funding toward these initiatives, they are also receiving aid from federal government stimulus packages.

These pandemic-era bills include funding that provides for various environmental and social-related initiatives such as air pollution monitoring, water testing, energy efficiency, diversifying the workforce, and supporting supplier diversity and equitable/inclusive social initiatives within the community. With funding still available to spend, states will have an ample supply to push forward on their various environmental and social projects.

Growth in Environmental and Social Government Contracts

Using GovWin’s database of SLED bid data, Deltek research identified instances where there was a requirement related to environmental or social themes from over a four-year period (2019-2022).

The below chart highlights environmental bids between 2019 and 2022. Deltek analysts have found several consistent themes where governments are mitigating the severity of climate change through a variety of services, and noted them in their State and Local Procurement Snapshot for Q2 2023 report. Of those themes, there is a stronger emphasis on investing in renewable and more efficient energy. Finally, to protect water from contamination and overuse there is the need to manage and monitor water resources. Overall, these environmental trends grew by 9.2% between 2021 and 2022.

DE&I (diversity, equity and inclusion) initiatives continue to rise across governments. There is growth in abuse protection services as a result of governments responding to higher rates of problems and crimes, and mental health has been an increasing priority for governments since 2020. The pandemic also impacted youth and the workforce, resulting in a greater focus on disadvantaged youth services and workforce development programs. Overall, these social trends grew by 20.2% between 2021 and 2022, as the below chart shows.

The Future of ESG and the SLED Government Contracting Market

As a result of higher growth rates and more attention paid to environmental and social priorities, the anticipation is for this market to be competitive. Kevin Plexico, senior vice president of Information Solutions at Deltek, spoke to Federal News Network about how DEI is poised to continue to impact the market. The ESG market will also likely evolve, naturally attracting attention from businesses, and will spur innovation. This evolution can include technologies or unique methods used to more effectively address these needs.

Governments solicit for environmental and social services from all industries: architecture & engineering, construction, professional business services, healthcare, social work, and IT services. This creates substantial demand for many industry segments and types of services. The ESG framework is currently not a requirement in SLED procurement, however, state legislature discussions and policymaking regarding ESG topics are ongoing.

Government contractors should be aware of ESG related procurement requirements the federal government may implement, as they may serve as a reference point for SLED to copy or partially adopt in the future. To stay up to date with all of the latest ESG trends in this market, download Deltek’s free report at the link below.