Eco-consultancy: the green growth sector
It is now 21 years since ENDS published Britain’s first directory of environmental consultancy. To mark the anniversary, Hannah Pearce charts how the sector has grown from a tiny seedling to an important part of the economy turning over £1.5 billion per year
Environmental consulting in Britain is a barometer of eco-commitment in the broader economy. The sector’s size reflects the appetite of business and government to pay for green expertise. Trends in key work areas in the sector accurately reveal the preoccupations of consultancy clients over time.
Twenty-one years on from ENDS’ pioneering first directory of environmental consultants we look back over the sector’s history and explore the key drivers, past and present.
Environmental consulting can trace its roots back to the 1960s or even earlier in fields such as civil or public health engineering or laboratory analytical services. However, it first emerged as a sector in its own right in the 1970s.
Britain’s first multidisciplinary environmental consultancy was established at the beginning of the decade. A handful of bright geotechnical and other specialists identified a market for expertise to tackle complex environmental problems that most engineers simply didn’t know how to solve.
A smaller group willing to work across a range of disciplines also established a market for the assessment of regulatory proposals and the development of methods that could integrate environmental considerations into core areas of routine business decision-making. One of the first firms to offer a multidisciplinary capability was Environmental Resources Limited (ERL), formed in 1971 by Florence Fisher, an American woman who had moved to London. ERL’s unique offering from the outset was a robust line in what has come to be called ‘high-end’ strategic and policy-oriented advice.
In some of its earliest projects it reviewed progress in environmental regulation across all member states for the young European Commission and a project to produce a 1974 master plan for an environmental protection regime in Hong Kong.Another notable pioneer was Aspinwall & Company, a multi-function technical environmental consultancy established by hydrogoeologist Rod Aspinwall in 1972, partly in anticipation of the Deposit of Poisonous Wastes Act 1972 but also with a close eye to the forthcoming Control of Pollution Act 1974.
As long-time business partner John Lucas suggests: "Having worked for the water board that oversaw the hazardous landfill facility at Pitsea, Rod did more than almost anyone else to establish the market for independent technical advice about pollution prevention from waste management facilities and the broader management and protection of water resources in general".
These two firms were the more visible end of a slow wave that saw 18 other environmental firms established by 1975 and another 17 by 1979. Most started out as little more than one-man bands but nearly all diversified rapidly in the early 80s to offer advice drawn from a dozen or more scientific, engineering and other disciplines.
Expansion
Nearly half of staff in the early days also held PhDs because much of the work required both the intellectual rigour and the nerve to invent good professional practice as the projects went along. The early 1980s were marked by the largest economic recession for over half a century, a sharp downturn in the number of major development projects and a determined effort by government to alleviate the burden of regulation on UK business. All of this hammered traditional consultancies with an engineering focus and those that specialised in pollution control equipment for the dwindling UK manufacturing base.
Yet against this backdrop multidisciplinary consultancy firms thrived. Their numbers grew to 75 by 1987, including a string of commercial enterprises set up by leading university departments such as Aston and Aberdeen.
One stimulus for expansion was the North Sea oil boom and the related rush to develop land-based refining capacity. Another was the emergence of environmental policy as a field in its own right at EU level. Closer to home the drive for urban renewal, combined with the demise of heavy manufacturing, expanded demand for contaminated land assessment and remediation services.
The same decade was also marked by a string of environmental disasters including Chernobyl, Rhine pollution, international trading in hazardous waste (the Karin B) and discovery of the Antarctic ozone hole. These coalesced with considerable potency to awaken consumers to their place in the spiral of environmental decline and to drive many large companies to realise that their future prosperity would depend on better environmental management.
In 1987 we saw the merger of UK government inspectorates covering air, water, waste and radioactive substances into HMIP. This fully integrated environmental protection body was given a tighter remit under the Environmental Protection Act 1990 to implement a more systematic and quantitative regulatory culture for industry build by applying the best practicable environmental option.
Environmental impact assessment
In addition, the then European Community’s first Directive on environmental impact assessment (EIA) for major projects took effect in 1988. This piece of legislation would transform large infrastructure projects and push up demand for planning, landscape architecture and ecological expertise for more than a decade.
It would also make local authorities employ consultants to check the quality of statements presented to them and lead developers to assume an EIA would be essential to win consent regardless of whether one was actually required by law. Meanwhile, US parent companies burned by pollution clean-up costs at home began to lay down uniform and detailed environmental protection guidance for overseas subsidiaries. This widened the range of client groups interested in consultancy services and the type of work on offer to include a surge of environmental auditing.
Meanwhile, groundwater quality moved up the political agenda and a swathe of pollution risk reduction and water management projects in manufacturing began to identify systematic resource efficiencies and measurable cost savings on the back of legal compliance. Within a few years this trend gave rise to international standards for environmental management systems (ISO14000).
All these factors spurred furious expansion in environmental consultancy. In the two years to 1990 the ENDS Directory recorded growth of 80% across the sector. Moreover, by 1992 the market had grown to 340 players employing twice as many consultants as in 1990, turning over an estimated £400 million with a quarter of all firms commanding nearly 80% of available work. Economic downturn then hurt some areas of the business, particularly those funded by local government such as geotechnical groundwater work and developers, which shrank EIA. Yet for much of the 1990s a broad-based advance in environmental awareness bred a keener pressure to evaluate and improve environmental performance across business and government.
Old clients in large infrastructure or heavy manufacturing were joined by a host of smaller manufacturing firms, distributors and retailers, and large public institutions such as the health service and the armed forces. As a result, the sector’s turnover grew at a healthy 15% per annum on average throughout the decade.
On the other hand, several factors combined to upset early forecasts that the sector would turn over £1 billion by 1995. Engineering firms entered the market with specialist subsidiaries, often charging much lower rates. There were also some major mergers and acquisitions, led by US companies out to buy a presence in Europe.
Globalisations
Meanwhile, according to executive chairman of ERM Robin Bidwell the largest firms came under relentless pressure to globalise operations to keep pace with the business practices and purchasing preferences of their multinational clients. "It became perfectly clear that many large clients were simply no longer prepared to pay the overheads associated with flying in expertise from another country and wanted a world-class service delivered by local expertise."
In the end it would be 2002 before the UK consultancy sector breached the £1 billion turnover threshold, and then only 13 operators reported a turnover more than £10 million with no single firm yet managing to gather more than 6% of overall market share.
By 2003 the sector also began to diversity and stratify more strongly. Four main types of consultancies – civil engineering, laboratory practices, materials science or process engineers, and dedicated multidisciplinary consultancy houses – were joined by a host of surveyors, architects, water companies, academic groups, legal practices, planning specialists and ecologists. These offered a range of niche services, often for much keener prices than the larger firms.
Most critical to the sector’s future has been the rise of climate change as an environmental issue, and the resultant spike in interest in carbon management. Most leading environmental consultancies have put efforts into developing their expertise in carbon. Consultants from other sectors such as strategy and economic consulting have been drawn in too.
Carbon consulting is now experiencing a growth rate that rivals or even exceeds anything ever seen in the eco-sector. In a report published in July 2008, already well into the credit crunch, carbon market analyst Verdantix said leading players expected 200% growth in demand for advice on carbon markets and renewables in 2008 compared with 2007. Corporate demand for advice on climate change is growing at an annual rate of 25%, the report added.
The Carbon Trust is a vital factor. It has over £100 million of public funding per year. A lot is spent on consultants that have fanned out across Britain dispensing advice. A parliamentary report showed that 30% of councils, 40% of universities, 24% of corporate groups and at least 12% of UK firms with energy bills above £50,000 per year had engaged with the Trust.
Notwithstanding the rampant growth of carbon advice, the credit crunch and subsequent recession is putting pressure on environmental consultancy. Some sub-sectors such as property-related work have been badly hit. There may also be a roll-back in discretionary spending by firms that had built up over a decade of economic stability and rising public commitment to the environment.
As the crunch and its aftermath play out it is unclear how far changing boardroom priorities will deprive non-statutory environmental projects of their funding. One change is already clear. As the most recent ENDS market survey attested, green legislation is no longer expected to be enough to buoy up demand for advice even where industry remains driven by compliance requirements.
Moreover, since 2003 central government and its agencies have made up the largest body of clientele for the sector, accounting for about a fifth of all turnover. So if government opts to cut consultancy spending, many firms may suffer.
Health of the sector
Some thus predict the sector’s health will prove to be closely tied to the fate of the waste management, contaminated land remediation and renewable energy industries, a trend that may hammer many small and larger consultancy firms. Opinion remains deeply divided about the future of the largest multidisciplinary firms. Some observers predict a wave of takeovers by international corporations keen to expand their competence and to gild their credentials.
Others disagree. As Robin Bidwell points out: "The history of multinational companies buying environmental consultancies has not been good. We are a people business with a culture that does not lend itself to governance by management accountants. As a result few global corporations have ever managed to swallow such firms and none have met with success trying to make them a subsidiary business."
Despite the short-term gloom, it is hard to foresee an important overall contraction in environmental consulting in the long term. The key driver for the future can be summed up in one number: the government’s commitment to Britain cutting its overall carbon emissions 80% by 2050.
Demand for climate and carbon advice has already rocketed, yet it is clear that Britain has so far only scratched the surface of this enormous challenge. Cutting carbon emissions by four fifths will lead to a transformation in the way that UK business operates.
Bodies of all sizes and in every sector of the economy will have to change multiple aspects of the way they operate. Energy management will not only be affected – also transport, product development, waste management, infrastructure planning… in fact just about every facet of Britain.
The environmental consultancy may well have to transform itself to match this change. But there will certainly be continued demand for its advice and support.
Catalyst of regulation
The development of more robust policy and regulation has been the most crucial driver for prosperity and growth across the environmental consultancy sector throughout its 20-year history.
One of the best illustrations for this is the evolution of contaminated land services, which have always generated at least 10% of sector income and at times as much as a fifth of all turnover. In the early 1970s the UK lacked a regulatory regime even remotely resembling the US superfund process but that experience led many multinational companies to create a backbone of work for the young UK consultancy sector.
This workload was then consolidated after 1992 when new laws required UK local authorities to compile a register of contaminated sites, which would in turn make land buyers far more precautionary about the risks and liabilities they might be purchasing. Later the EU’s IPCC permitting regime expanded demand further. The most recent ENDS market survey suggested this area of work remains a key breadwinner generating close to 15% of all fees taken across the sector.