Leading the fight against climate change
Britain boasts a diverse and thriving market for environmental services and is leading the world in climate change and carbon management. Liz Trew assesses UK strengths in environmental consulting as firms look to expand in the global marketplace
A year ago, ENDS reported that ministers finally seem to be waking up to economic opportunities in the environmental sector, with the creation of a new government task force to make recommendations on how to stimulate the sector’s growth, productivity and employment as the UK moves towards a low-carbon economy (ENDS Directory 2007, pp 25-28).1
A key element has been the recognition that British business has something unique to offer and is well placed to exploit the burgeoning opportunities in environmental markets, both domestically and internationally.
In spring 2007, the government’s UK Trade and Investment (UKTI) organisation published a promotional report, heralding the UK as a "world leader in environmental solutions".2
The report was the culmination of eighteen months’ work by the business-led Environmental Sector Advisory Group (ESAG).
In his introduction to the report, Colin Drummond, ESAG chairman and chief executive of Viridor Waste Management says climate change and environmental degradation are recognised as the key challenges facing the world today, but the UK’s leading role in addressing these issues is less well known.
"World focus on these issues is playing to the UK’s strengths. However, we cannot sit back because other countries are seeking to capitalise on the same opportunities. UK companies should build on their strong position and fully embrace opportunities worldwide in this field," Mr Drummond goes on to say.
The environmental goods and services (EGS) sector in the UK was estimated to be worth £25 billion in 2005, employing some 400,000 people within 17,000 companies. Water treatment and waste management services account for the bulk of turnover, with consultancy contributing around 5% of the total. The sector is expected to reach £34 billion by 2010, representing impressive growth of 42% over the five-year period.
The UKTI publication highlights ten main competitive advantages differentiating the UK from its competitors in the £400 billion global EGS marketplace, including:
- The "market-friendly" regulatory system
- Track record of environmental improvement through strong regulatory framework
- World-renowned centres of scientific excellence and research in environmental sciences, engineering and technologies
- Extensive experience of UK companies working in partnership with public and private sector clients (PPPs and PFIs)
- Increased government investment in innovative approaches through sector-specific schemes such as the Carbon Trust and the Waste and Resources Action Programmes (WRAP)
- The City of London is a world leader in carbon emissions trading and financing international climate protection projects via the Clean Development Mechanism
The report goes on to identify a "broad and respected range of professional service organisations, encompassing world-class environmental consultancies and law practices," as being central to the UK’s environmental industries sector’s competitiveness.
"These firms have close relationships with the financial and industrial communities and an important role at the heart of UK environmental protection and activity as advisors on the UK’s rigorous and globally admired environmental law framework. They are also very active internationally," it says.
British consultants are described as providing ever-expanding expertise on an extensive range of environmental issues, while building capability in less traditional fields such as energy policy, cost reduction and purchasing advice. Other growth areas highlighted by UKTI include renewable energy, waste management and minimisation, eco-design and life-cycle assessment, clean technology and advice on new regulations such as climate change levies, end-of-life directives and carbon trading.
The UK sector’s strengths and global potential were further underlined in a recent joint report from the government’s Environment (DEFRA) and Business (BERR) Departments.3
The Commission on Environmental Markets and Economic Performance (CEMEP) points to UK environmental services as being a diverse, dynamic and knowledge-intensive area of industry – employing a large number of highly skilled graduates. With the right policy support and investment, it says, the sector can build on its market-leading position and "contribute disproportionately to productivity growth and wealth creation in the economy".
Consultant perspectives
Environmental Resources Management’s partner responsible for business development, Tom Woollard, is a firm believer that the UK takes the lead in terms of breadth and innovation of consultancy services, driven mainly by the demands of clients: "I think large companies and multinationals in the UK are more engaged in the sustainable development and corporate social responsibility agenda, and as such are generally willing to consider more innovative and ambitious approaches in this area."
ERM has a global network of over 135 offices in more than 40 countries, employing over 3,000 staff worldwide. "Clients purchase a wider range of services from ERM in the UK than in any other country elsewhere in the world and are generally very receptive towards our more innovative service areas," says Mr Woollard.
"Our experience is that US clients are more focused on compliance-led initiatives due to the prescriptive nature of the regulations, while clients in continental Europe are more cautious of external advisors and often have large in-house teams. Some of our clients in the UK are actively pursuing market leadership in areas such as carbon footprinting, renewable energy and environmentally friendly product development."
WSP Environment & Energy’s Simon Pringle agrees client behaviour is a major contributor to the UK consultancy sector’s strength: "The UK has highly deregulated economy and significant levels of private company ownership compared to other Western European markets – in addition to which London is the European base for a large number of multinationals – which has a major bearing on procurement of external services. The UK’s strong financial sector, regulatory framework and business ethics also make conditions favourable to develop a strong consultancy market."
WSP employs about 1,000 environmental staff worldwide – around half outside the UK – achieving a total revenue of £57.5 million in 2006 (up from £44.3 million in 2005). Last year, the firm opened its first German office in Frankfurt to leverage client relationships between the financial centres of London and Frankfurt.
"We’ve got a lot to be proud of and export our knowledge fairly well in the global marketplace, although several US firms are doing well over here and the Scandinavians and Swedes especially have a strong track record in all things energy related," says Mr Pringle. He also observes that UK consultants are particularly prolific in the worldwide market for commercial environmental due diligence services (see EDD feature).
Until recently, the US has been widely viewed as taking a lead in environmental consultancy and engineering markets, and is often considered five to seven years ahead of the UK and Europe in terms of regulations and compliance-led initiatives.
"But this is not the case for corporate social responsibility (CSR) and energy management," argues Ian Bailey, European director of Environ, which operates in more than 50 countries worldwide, "as the US is playing catch up with Europe in these key disciplines."
Mr Bailey also believes the UK’s long history of strict planning regulations, coupled with high land prices, have stimulated the market for environmental impact assessment and that the UK stands out as being highly skilled in this consultancy subsector.
Climate strength
Meanwhile, RPS Group – arguably Britain’s biggest home-grown environmental consultancy – singles out climate change as an area where the UK has strength in breadth.
RPS Director Niall Enright told ENDS: "It is no coincidence that the UK is now recognised as a world leader in climate change consultancy services. Investments by successive UK governments from the 1980s onwards have developed a depth and breadth of technical expertise that is second to none. This means the UK approach tends to be more cost-effective and, critically, more sustainable in the long run compared with solutions based exclusively on technology.
"The UK has led the world in creating market mechanisms to deliver emissions reductions in the most cost-effective manner – the UK emissions trading scheme being the best example. RPS is well positioned to export these skills internationally," he adds.
RPS is experiencing demand from its customers for climate change services at all levels – from formulating climate change policy and strategy through to providing consultants to deliver energy efficiency, carbon management, planning services or renewables technologies.
"We are in the unique position that we can offer stakeholder engagement and information services as well as hard-core technology consulting – enabling us to deliver and manage change at every level for our clients. In Ireland, for example we are helping deliver the National Energy Awareness programme for the Irish government, while in Australia we are engaged in the practical aspects of helping BHP Billiton deliver better emissions performance in its giant Olympic Dam mine," says Mr Enright.
RPS’s global climate change offering was recently boosted by the acquisition in August 2007 of MetOcean Engineers. Based in Perth, Australia, MetOcean’s fifty environmental professionals undertake projects on an international basis, serving the oil, gas, mineral and shipping sectors, as well as government agencies.
Global potential
The world’s developing economies in Asia, South America and the former European Eastern Bloc – which are large and fast-growing markets for environmental goods and services – present the greatest opportunities for British environmental firms to export their knowledge and technologies. The UK is already a net exporter in the EGS sector, according to CEMEP.
But the sector faces stiff competition from the US, Japan and other European countries, as well as from within the target markets as countries such as India and Russia are producing huge numbers of skilled engineering graduates.
At present, the EU, US and Japan are estimated to account for around 94% of the global EGS market (see Figure 1).
The sector is projected to grow by 45% to at least $800 billion by 2015, according to the latest figures from the UK Centre for Economic and Environmental Development (see Figure 2).
The US-based market analyst Environment Business International’s market size and growth projections are also shown here as a comparison.
In the EU, the new crop of member states require substantial investment in basic environmental infrastructure, such as water supply and waste management, and industrial improvements to meet international standards in environmental protection. UK environmental firms are beginning to flex their muscles in these markets, although competition is already strong, notably from German and Scandinavian companies.
But without doubt, some of the greatest potential opportunities are likely to be found in China and India, which are both investing heavily to reduce the environmental impacts of their rapid economic growth. The size of the countries and scale of the challenges mean these two markets are predicted to have the fastest growing EGS markets globally. But once again, the competition here is fierce.
The UKTI’s Environmental Industries Sector Unit (EISU) has a remit to promote UK environmental expertise and technologies overseas. However, few companies are probably aware of the support it can provide (see box).
EISU – supporting UK environmental firms overseas
The prime objectives of the Environmental Industries Sector Unit (EISU) are to significantly increase the UK’s share of the global market for environmental goods and services and encourage inward investment in the UK sector. Through this support, the government unit aims to enhance the international competitiveness of UK EGS suppliers.
Douglas Barnes, head of the EISU, explains that because of the industry’s fragmented and diverse nature it does not have a single trade association to promote its interests abroad, unlike more mature industry sectors. In fact, more than 40 trade associations and bodies represent the sector. EISU’s efforts are focused on helping UK firms develop business partnerships and trade in the world’s developing economies.
To this end, EISU provides a range of activities, including a programme of ‘seminar missions’ co-ordinating with British embassies, high commissions and consulates abroad. The missions involve taking small delegations of up to eight UK industry representatives to showcase their capabilities of the subsectors (such as waste management and renewable energy) they represent to local officials, potential business partners and buyers in target countries.
Conversely, the unit also uses UK environmental trade fairs and expos as a backdrop to bring in overseas delegations and set up ‘meet the buyer’ events. The next one will be at Sustainability Live at the Birmingham NEC.
According to Douglas Barnes, EISU’s most recent series of seminar missions in the Balkans proved to be a resounding success. In Bulgaria, for instance, the delegation focused on waste management and landfill related services and technologies, including consultancy – presenting to around 120 local contacts. One-to-one meetings were also set up between seminar attendees and UK representatives.
"The Balkans trip included at least three companies who were new to the EISU and they couldn’t thank us enough at the end and definitely want to be part of future missions," says Mr Barnes.
EISU has a database of more than 3,000 UK EGS supplier organisations, which can be accessed online by potential clients, UK embassies and high commissions to match enquirers with UK suppliers.
- www.eisu.org.uk, tel: 0207 215 4372
International success
UK environmental consultancy firms have a well-established track record of winning international work. According to figures derived from the 611 consultancies listed in ENDS Directory 2008, this group is collectively involved in more than 242,000 global contracts on an annual basis – 63% of which originate from outside of the UK. At least 75 companies have branch offices overseas, thereby operating as part of an international network, including both foreign-owned and UK-based firms.
There is also evidence that many smaller consultancy practices are able to supplement their domestic workload with projects commissioned from overseas. Figure 3, p 30, shows a substantial 267 consultancies claim to have experience of working in Western Europe (outside of the UK), according to their profiles on www.endsdirectory.com. Central Europe and the Middle East also form significant markets for our consultants.
Like many of its peers, Environ’s strategy has been to follow clients into new territories as they have expanded globally. Ian Bailey says: "We have a largely multinational corporate client base, and as their businesses have become increasingly globalised it has generated a need for worldwide consistency in consultancy service provision. In the past few years, we have seen a lot of manufacturing site closures in the West and openings in the East."
"But I believe that wherever we go in the world, local offices should be self-supporting with local contracts and then the icing on the cake is to collaborate on global projects," he adds.
He cites a recent collaborative project in Spain, which illustrates "the modern way of how we can respond when global consulting opportunities arise". Environ was commissioned to undertake a carbon footprinting exercise across all the hotels in the Canary Islands for the Spanish government. "Our local consultants in Spain were able to lead on the client relationship, while UK consultants went out to assist on the technical side and we also used our US-designed software management tool," Mr Bailey explains.
Environ’s total European operations have grown from 100 to 500 staff during the past five years, of which 170 are based in the UK. According to Ian Bailey, the main barrier to the US-based firm’s further expansion across Europe is difficulty finding talent. "We need consultants who have good technical backgrounds and commercial skills, as well as being multi-lingual (preferably English-speaking) with the drive, ambition and willingness to work hard to make the business a success."
RPS has also seen spectacular growth internationally over the last four years, supported by the rapid development of the group’s new energy division, which accounts for about one third of the entire business. According to brokers’ forecasts, the group is expected to turnover £350 million in 2007.
Recent acquisitions of several mid-size energy consultancy businesses in Australia have added to RPS’s ability to support oil and gas clients in the Pacific Rim. In turn, this has put RPS in good stead to grow its environmental management and related planning services in the region.
This typifies the group’s two-pronged global business strategy as executive director Dr Phil Williams explains: "We’ve taken a sector-focused approach, concentrating on niche markets to establish a critical mass of staff, clients and major projects before expanding the range of services offered locally in the region. And we’ve found that our particular approach to global expansion is certainly paying off."
Unlike some of its closest competitors, RPS has elected not to pursue all-out market share in its bid to expand internationally. A prime example of a market-leading niche business is RPS Burks Green, an industrial design firm specialising in airport and rail infrastructure development. Its acquisition by RPS in July 2006 brought with it an office in Poland – RPS’s first in Eastern Europe. Burks Green was also an attractive prospect because it operates at the top end of its specialised market serving a global clientele.
Accession states
The lure of Central and Eastern European markets for Western firms has been well documented, but environmental consultancy firms are experiencing mixed fortunes in their attempts to gain a foothold in the region.
ERM was among the first to set up shop in the early 1990s with offices in Hungary and Poland, working mainly on EC and donor funded projects. It has since opened offices in Romania and Russia. "We’re still doing a lot of work for the EC, as well as merger and acquisition support work for multinationals in the region, but these offices have also developed their own local and international key clients," says Tom Woollard.
He adds: "While these operations have grown very quickly, we’ve perhaps not seen quite the growth we were expecting when the Berlin wall came down. There is a limit to our market penetration because of our strategy to work with multinationals and on large projects. Domestic competition has recently grown rapidly."
Environ shares a similar experience. According to Ian Bailey, its Polish office was established four years ago "as more of our clients were going there and Poland was soon to become part of the EU, so we know the regulatory drivers were coming".
The Warsaw office grew to a twelve-man operation and has been fairly stable at that level for a while. Like ERM, Environ tends to focus on the high-end of the sector – a deliberate move because of the substantial difference between local fee rates and international fees.
Western companies in the region also have to contend with the political turmoil, bureaucracy and complicated tax issues – not to mention the questionable business ethics among some local officials and contacts.
Ian Bailey comments: "A lot of people did think there would be more development in Central and Eastern European countries which hasn’t quite materialised as yet, but Environ’s Poland operations have provided a base through which to win work from neighbouring jurisdictions."
The firm is also experiencing an uplift in demand from the former Soviet Union, mainly for work on due diligence and major energy developments, but is proceeding with caution on account of business ethics issues. Environ is at present managing the bulk of its Russian workload from within the UK.
Exciting future
Exciting times are undoubtedly ahead for those in environmental consultancy. The UK sector is well placed to leverage its market-leading position in key areas such as climate change and CSR.
WSP’s Simon Pringle comments: "I think the most exciting thing is that where energy and environment are concerned there has been a global change in attitude – something has clicked into place – and we’re witnessing the change from these areas being technical necessities to issues of global leadership. The world stage has changed completely now that environmental performance is considered a key business metric.
"There are still significant opportunities to come from the emerging economies of the EU accession states as they move forward. In terms of ‘thought leadership’, Australia is demonstrating new ways to manage water scarcity, while China is providing the backdrop for the development for whole new eco-cities from scratch," he adds.
For ERM, the globalisation of business offers some tantalising prospects. "What we are most excited about is the continuing globalisation trend – among our clients, ERM’s business and in our sector in general – and the potential for knowledge transfer from one part of the world to another through this growing connectivity. There’s a huge opportunity to share our learning from the US and EU with developing countries," says Tom Woollard.
"The drivers for our services remain incredibly strong – including climate change, water shortage and the price of energy, forcing the extractive industries to move towards more remote, difficult locations. At the same time, as a company we’re opening up to new sectors such as finance and retail, and seeing strong growth in emerging markets in Asia-Pacific and Latin America."
Ian Bailey is similarly looking forward to future opportunities arising from the collaboration of Environ’s European business units "across our normal range of services as well as the more innovative energy and carbon management services".
In addition, Environ is anticipating increasing demand for eco-design, life-cycle assessment and other product stewardship services, as a result of new legislation coming from the EU as well as companies’ own CSR commitments. It is also gearing up for increased prominence globally of the interaction between human health and environmental issues.