Amid a fragile economic upturn, the risk of a double dip recession and steep public spending cuts, UK environmental consultancies find themselves in something of a quandary (ENDS Green Consultancy Review 2010, pp 5-8).
A slow recovery from the market nadir of 2009 is under way. But competition is fierce, fees remain pressured and margins thin. And the fog of uncertainty will remain a drag on domestic growth prospects for at least the coming year.
So, many firms are looking beyond the UK, including multi-disciplinary consultancy WSP Group. Reviewing the group’s first half results in July, chief executive Christopher Cole acknowledged the market’s “ongoing uncertainty”.
But “diversified business across regional markets [had] provided, and will continue to provide, trading resilience in the face of market uncertainties,” he said.
Succeeding in overseas markets requires a different mindset, says Simon Aldrich, director at consultancy AECOM: “It is necessary to interact with each country, develop with them, nurture client relationships and project experience, and not simply try and replicate the experience learned domestically.”
Environmental consulting has become more globally-focused, he adds. “There’s now a different zeitgeist, on climate change, urbanisation and sustainable infrastructure development. The issues are now more globalised and climate change is changing all the parameters.”
Competitive pressures have forced environmental consultancies to adapt. “It’s now much harder to adopt a ‘colonial’ strategy in overseas markets,” added Mr Aldrich. Instead, combining ‘western’ experience with local expertise is the order of the day for many.
Doug Ford, director at Anglo-Dutch multi-disciplinary consultancy Royal Haskoning, agrees: “With rising local expertise comes rising competition, so it is necessary to work in partnership,” he says. “This has cultural, social and cost implications, regarding the mix of local and ‘western’ staff employed on a project.”
For some, previous overseas excursions have ended in tears. Not least, for those caught out by over ambitious expansion into the Republic of Ireland or parts of the Middle East. The 2008-09 global downturn saw some consultancies getting badly burned there.
Now, with the worst of the credit crunch having passed, several overseas markets provide scope for growth. Not all are large but many are fast growing. They include central and eastern Europe, Turkey and the Middle East and on to the Far East, where China in particular offers prospects.
Neil Humphrey, managing director at Waterman energy, environment and design, told ENDS: “The international market is presenting some very interesting opportunities.
“South-east Asia presents good growth potential for environmental consultancy services and we continue to be active in the UAE where we have a number of high profile schemes.”
The consultancy’s track record in China “provides us with a good platform to lever this growing market”.
He sees particular scope for growth in compliance, risk liability and environmental management services.
“We’ve always delivered our due diligence services internationally and as the international market recovers we are beginning to see these transactions return,” he says. Waterman’s multi-national clients now want to put such management systems in place not only in their UK operations, but overseas too.
The hurdles for tapping some overseas markets are high. But for those who overcome them, the rewards can be large.
The EU’s eastern fringes might be a good first stop. “In Poland, Romania and some neighbours there is much EU-funded work, as well as a growing privately financed market,” explained AECOM’s Mr Aldrich.
“The central and east European countries need to tackle energy and water-related issues, as well as spending on ‘big-ticket’ infrastructure development,” he says.
In its March 2010 market prospects report, The Association for Consultancy and Engineering (ACE) tipped Poland and Slovakia as two of Europe’s three most buoyant markets to 2013.
For Poland, it reported “very strong growth in the civil engineering sector, with a big road building programme currently in full swing”.
Romania is also increasing its environmental spending, spurred by its EU accession in January 2007. It has attracted the attention of several consultancies, including AECOM.
In May this year, the consultancy further strengthened its hand there, acquiring technical services firm, INOCSA Ingenieria. For as well as having a long-established position in the Spanish market, Madrid-based INOCSA has developed its market presence in Romania. INOCSA’s appeal lays in its expertise in energy, transport, environment and water consulting and the close fit with AECOM’s regional strategy.
Multi-disciplinary consultancy RSK also gained a foothold in this market in 2006, with the establishment of Bucharest-based RSK Romania. It has expertise in site investigation, soil and groundwater contamination assessment, corporate environmental management, due diligence, environmental management systems and environmental training services.
Growth opportunities exist elsewhere in the region. Though the markets are smaller than those of Poland and Romania, the countries of the western Balkans – mostly ex-Yugoslavian – are the focus of rising infrastructure development, much of it water-related and aid-funded.
“The western Balkans market, especially the donor-funded market, has fluctuated in the past, but it has grown considerably in the last two to three years,” says Keith Cook, head of policy advice at multi-disciplinary consultancy WYG.
Group turnover there has soared from €1.9m two years ago, to €12m now. As its order book has grown, WYG has consolidated its position as the region’s largest provider of development donor-funded consultancy services.
With its consortium partners, it announced its largest ever international programme in January this year. Focused on Croatia, Serbia, Kosovo, Bosnia and Herzegovina, Macedonia, Montenegro and Albania, it comprises the second phase of an EU-funded programme to restore and upgrade transport, environmental and energy infrastructures.
This four-year, €14.8m project builds on an earlier €15.1m WYG-led project in the region, which itself also secured an extension to 2014 and increased in value to €30.2m.
More than half the work is focused on environmental projects, particularly water and waste water treatment. The consortium aims to identify and develop suitable projects and provide the bankable documents required to lever the finance from international funding institutions.
WYG is particularly upbeat on Croatia. It is likely to be the first of these western Balkans countries to join the EU, but it needs to raise its game on water in particular, in order to comply with EU standards.
After decades of under-investment in drinking water and wastewater infrastructure, a multitude of projects are under way in Croatia. “The contracts are relatively small, but there are a lot of them,” says Mr Cook. WYG recently registered a subsidiary in the capital, Zagreb, and also opened offices in Sarajevo, Bosnia and Herzegovina in July. Meanwhile, Mott MacDonald opened an office in Belgrade, Serbia, in September, as part of its expansion in the region.
Heading east, the Turkish market is larger and consultancies think it offers good long-term prospects. With a growing population of 75 million, a land area more than three-times that of the UK, a rapidly evolving economy and society and a host of environmental problems, it has much to interest them.
Economic growth has soared in recent years. Turkey became a candidate country for EU membership in 1999 and formal membership talks started in October 2005. But negotiations are expected to take at least ten years and significant hurdles remain, with some major EU member states appearing fundamentally hostile towards Turkish accession.
Even so, Turkey’s aspiration for EU membership has sparked the upgrading of some of its environmental legislation. Its 1983 Environmental Law underwent comprehensive amendment in 2006.
But much remains to be done and only in December 2009 was the environment chapter in EU accession talks opened. To close it, Turkey will have to implement environmental legislation that brings it up to EU standards.
Turkey’s environmental problems are largely those of any rapidly industrialising country. Export-oriented growth has been built on textiles, iron and steel, motor vehicles, machinery and fuels and oils; hardly the greenest of industries. Growth in agriculture, tourism, road transport and shipping has added further to its problems.
The most pressing problems stem from water pollution, chiefly from the dumping of chemicals and detergents, industrial and urban air pollution, deforestation and agri-environmental issues.
Turkey’s position at the cross-roads of Europe and Asia has saddled it with further environmental problems. It is a major transport corridor, not least for shipping passing through the busy, narrow Bosphorus straits.
Growing numbers of tankers, bulk carriers and other vessels present particular risks, chiefly the potential for spills and accidents and pollution from the ships themselves. Water borne pollution from its Black Sea neighbours has added further to Turkey’s woes. It is a problem that international cooperation has yet to adequately address.
Air pollution is a serious problem, particularly in big conurbations such as Istanbul and Ankara swollen by Turkey’s rural-urban population shift. Car ownership has grown fast while public transport has developed only slowly, further worsening air quality.
Industrial air pollution has also risen, largely from the growing power generation, metals, cement, sugar refining and fertilizer sectors. SO2 and CO emissions have now been decoupled from economic growth, but further progress is required.
In some urban and industrial areas, SO2, NOX and particulates levels exceed national air quality standards and emissions standards for some power plants lag those in the EU. Turkey’s CO2 emissions have also been rising rapidly.
Environmental problems, including biodiversity loss, have also stemmed from growth in agriculture. Land degradation, over-grazing, over-fertilization and deforestation have all taken their toll and serious soil erosion has afflicted much of Turkey’s land.
In 2008, the OECD’s environment directorate assessed Turkey’s environmental performance.1 It found some progress since 1999, but much more was required.
“Turkey confronts the challenge of ensuring that economic growth is associated with environmental and social progress, namely sustainable development,” it said.
The OECD report acknowledged that some institutional and legislative elements of environmental reform were in place, but “much of the necessary environmental infrastructure must still be created in urban and industrial areas”.
It concluded: “It will be necessary for Turkey to strengthen environmental policies and their implementation where appropriate; further integrate environmental concerns into economic and social decisions; and further develop international environmental cooperation.”
The situation presents environmental services providers with a large and growing market, AECOM’s Simon Aldrich said: “The Turkish market is extremely promising as it is potentially large and sophisticated.
“You have a combination of economic development and significant environmental pressures with an important geo-political position for neighbouring markets.”
Paul Upton, executive director of RSK Group concurs: “Turkey is a big country, with big environmental ambitions, so there is a lot of work to be won.”
RSK has been building its presence there. Last year it formed a joint venture with Ankara-based waste management specialist SAHA Environmental Management. Their respective shares are 70% and 30%.
RSK aims to provide expertise to businesses across the country, as well as guidance to the Turkish government on cost-effective, best-practice environmental management.
Middle East hotspots
Still heading east, the Middle East offers growth prospects, despite the market taking a dive in 2009. Royal Haskoning’s Doug Ford is bullish: “The Middle East is one of our hotspots, despite the Dubai debacle.”
Paul Ashley, group sustainability champion at multi-disciplinary consultancy Mott MacDonald, says the region illustrates how environmental consulting has evolved.
“The distinctions between environmental, engineering and construction-related consulting have become blurred. The issues have become more integrated and many Middle Eastern and Asian countries have socio-economic development ambitions, allied with sustainable development goals,” he said.
Construction-related consultancy has dipped in the region, but it has been offset by ongoing oil and gas work and a growing infrastructure-related market, particularly in the water, power and transport sectors. But competition is tough and on the rise from local players, while fees remain pressured.
Dr Ashley says that consultancies must demonstrate a local commitment in order to succeed in the region. “In a growing number of Middle East and Asian markets, companies involved in permitting activities, for example on EIAs, have to register and be approved as an environmental consultant.
“A growing trend is for staff carrying out permitting activities to also be qualified and registered. Thus, to carry out such work, consultants have to be prepared to commit to and invest in local staff and team development, or find a local partner.”
He continued: “If not, environmental consultancy is limited to multinational aid-funded projects or advisory services, such as due diligence and advising inward investors, such as international banks.”
But for those prepared to commit, the rewards can be substantial. A number of large-scale projects are in progress including the development of the Masdar ‘eco-city’ in Abu Dhabi, which Mott MacDonald has been involved with since early last year.
Masdar is planned as a “low-carbon, zero-waste city for 40,000 people, designed on green lines”, explains Dr Ashley. The consultancy has provided expertise in the strategic planning and design of the site-wide infrastructure, including power, waste, water, transportation and telecoms systems.
Further east still, China’s huge size, rapid growth and growing concerns about the environment and carbon also offers much to consultancies prepared to invest the time and effort. Among the first UK-based environmental consultancies to enter the Chinese market was Environmental Resources Management (ERM). It established a joint venture there in 1994 and a wholly owned subsidiary in 2002 (ENDS Report 391, pp 28-31).
Initially, much of the work for ERM and other western consultancies revolved around serving multi-nationals investing in China.
The market is now increasingly focused on services relating to sustainable infrastructure, including eco-cities. “There’s much promise in the Chinese market and a lot of it is low-carbon infrastructure-related,” says AECOM’s Mr Aldrich.
But to succeed, a deep understanding of local systems and frameworks is required. And with most of the detailed project design work being undertaken by local consultants, work for outsiders tends to be strategy and advisory-focused.
Mott MacDonald’s Dr Ashley says: “As a foreign consultancy in China, you need to bring value and innovation to a market where local technical skills are strong. You need to offer something of a unique selling point.”
The consulting firm has a long track record in China and one of its most significant undertakings is the development of Tianjin Eco-City near the huge conurbation of Tianjin in North East China. It has been involved with the project since early this year, reviewing and developing the financial planning and overarching sustainability strategy. It will oversee its implementation over the next ten years.
“It’s been very illuminating for us, to work on two contrasting eco-city projects [Masdar and Tianjin],” says Dr Ashley. “It’s made us think about sustainable development and eco-cites and what makes them successful, in different countries with different local characteristics.
“In all cases, you need to draw on the local environmental factors and allow eco-cities to grow, in both their economic and natural environments. It is also vital that they act as levers for behavioural change, encouraging more sustainable lifestyles.”
The scale of Tianjin Eco-City makes it a test-bed for sustainable technologies and a blueprint for the future development of sustainable cities. The £9.8bn development will cover 30 square kilometres of land with low economic, agricultural or ecological value, and should grow to house 350,000 people by 2020.
Carbon considerations play a significant part in the development. One fifth of the eco-city’s energy will be sourced from renewables, while the buildings are planned to be at least 65% more energy and carbon efficient than required by current Chinese standards.
Mott MacDonald is developing the city’s Green Building Evaluation Standard – equivalent to the UK’s Building Research Establishment Environmental Assessment Method – and leading the design of two demonstration projects; a school and 600 apartments. These are the focus of advanced insulation and cladding designs that aim to exceed the energy and carbon efficiency targets set by the building standard, by 40%.
As for sustainable transport infrastructure, “China has distinct social factors to consider, such as there being no great history of car use,” explains Dr Ashley. “So the development of public transport infrastructure is key.”
The aim is for 90% of eco-city journeys to be by foot, bicycle or public transport. Urban design and traffic control systems will discourage the use of private cars, while the integrated transport system will comprise a light-rail ‘spine’ linking three interchange hubs. An extension of the Beijing-Tianjin high speed rail line will link the eco-city’s centre with Tianjin’s port, Beijing and Tangshan, a large conurbation nearby.
There has been detailed planning on water resources with recycling and rainwater harvesting set to meet half of the eco-city’s water demand. A limit on water consumption of 120 litres per person per day is proposed, while the site’s existing wetland will play a key role in water purification before reuse.
Waste, recycling and waste-to-energy systems will minimise the volume of industrial and municipal waste sent to landfill. Also, a limit on waste generation is currently proposed at 0.8 kilograms per person per day, before recycling – some 62% of the current level in England.
But ambitious plans for Chinese eco-cities have floundered in the past. Multi-disciplinary consultancy Arup prepared the masterplan and sustainability guidelines for Dongtan, near Shanghai, for Shanghai Industrial Investment Corporation (SIIC) in 2006 (ENDS Report 391, pp 28-31).
Dongtan was envisaged as a zero-carbon city that would house 500,000 people by 2050. Its buildings were planned to have an energy consumption far below those of an average city, produce 40% of its requirements from bio-energy, be 100% reliant on renewable energy for its buildings and on-site transport, reduce waste sent to landfill by 83% and produce almost no carbon emissions.
SIIC intended to complete the first phase of development this year, but it has been “indefinitely postponed”.
Arup told ENDS: “We are disappointed that Dongtan is not going ahead as anticipated; however, urban design is a long-term activity which requires the alignment of central and regional political and economic wills. It often takes decades to deliver new urban developments, in China and elsewhere in the world.”
It’s a stark reminder that, however promising some overseas markets may appear, overcoming the barriers to them can often be a long and arduous process.