Global environmental consulting market surges

Sector marks best performance this decade, boosted by acceleration in Asia-Pacific and North America.

The global market for environmental consulting services jumped 6.2 percent in value during 2017 to reach $34.1 billion, according to the latest research report published by Environment Analyst. This is almost double the growth in 2016 and by far its best performance in all the years Environment Analyst has tracked and reported on the global market movements annually since the start of the decade (see Figure 1). Signs are that 2018 will see a similar order increase.

Growth among the top players has been aided by recovering mining and commodities markets (although the oil price trend has yet to inspire a sustained recovery in that important area for environmental consultants) as well as strong demand in climate resilience and storm recovery work in the key North American market. Also contributing to the result was a return to more buoyant conditions in Asia-Pacific spurred by several factors including China’s tightening environmental standards and enforcement.

However, it is also notable that among the cohort of the leading international environmental consulting players analyzed in depth in the study (the Global 22), growth is being spearheaded by those in the lower half of the rankings rather than those in the top tier.

This year’s findings once again suggest that the mid-size multidisciplinary firms and smaller environmental/sustainability specialists are more often than not outperforming their larger fully integrated technical and professional service provider rivals, for whom environmental consulting activities typically represent 5 to 10 percent (or even less) of overall group revenues.

Although the picture as a whole is now undoubtedly improving, the peer group has been through an extended period of low growth and consolidation during the last five years, with many of these firms actively participating in mergers and acquisitions to boost growth — some on a truly transformational basis. The Global 22’s dominance of what is still a fragmented market is evident from their combined performance in 2017, which saw aggregated environmental consulting revenues increase by 6.4 percent year-on-year to account for 43.6 percent share of the total global sector.

Yet despite the continued consolidation, only three players — AECOM, Tetra Tech, and Jacobs — hold an individual market share in excess of 5 percent. Former number-two CH2M has disappeared from the top three and wider rankings thanks to its takeover and rapid integration during the last year by Jacobs, a move that enabled the latter to rise up the table from its previous position of 16th to grasp the number three spot. Meanwhile, Arcadis, and ERM complete the top five.

Mega-merger activity also saw the entry lower down the table of SNC-Lavalin to the Global 22, thanks to its acquisition of Atkins in 2017, which sees their combined global environmental consulting operations now ranked 19th.

The report provides critical insight and analysis on the key strategic priorities among the top-flight players as many have sought to rebalance their organic growth versus merger and acquisition activities of late and prioritize their most profitable activities in response to the changing market dynamics and disruptors. It looks at how firms are addressing market cyclicality, the impact of the trend toward larger contracts, and the resourcing challenges as the upturn gains momentum in different sectors/geographies, as well as how players are embracing the digital revolution.

Geographically, almost half of all global environmental consulting revenues in 2017 were focused on the North American region (45.6 percent), with West Europe taking just under a quarter (22.7 percent). Asia-Pacific now ranks a close third thanks to its double-digit growth (21.7 percent), while Africa & Middle East (4.4 percent), Latin America (4.0 percent), and Central & East Europe (1.5 percent) account for the remainder. The top three environmental consulting players in each region are shown in Figure 2 (page38).

Anya Hembrough, deputy editor of Environment Analyst’s Global Market Intelligence Service and co-author of the report, said, “Despite the lingering conditions in the oil & gas sector, recovery in other sectors and regions suggests that the global environmental consulting market is now undeniably back on a growth trajectory following a very difficult period post [global financial crisis] and then as the commodities super-cycle fell away. Growth in the region of 5 to 7 percent in 2017 and 2018 is welcome proof that the industry is successfully repositioning itself to a new market norm with so many different drivers and disruptors at play compared to just five years ago.

“Also providing a fillip of late has been the level of disaster recovery-related work, particularly for the North American majors — although whether this will see sustained focus or if it is more of a temporary blip remains to be seen,” Hembrough said. “But what does seem more assured is the strong increase in demand coming from Asia-Pacific, particularly as China continues efforts to transform its manufacturing base and environmental credentials. As such, we also expect to see much more of some of the rising Eastern stars making their mark in the global environmental consulting space.”

Growth is forecast for 2018 and 2019, albeit at a slightly lower level given the political and economic uncertainties expected to impact key regions (notably relating to the U.S. and Brexit in the UK/Europe) curbing confidence. But over the longer term, the compound annual growth rate from 2018 to 2022 is lifted in Environment Analyst’s latest global forecast model — compared with last year’s — at 4 percent. This would bring the worldwide environmental consulting revenues to $41.5 billion by the end of this five-year period, with Asia-Pacific (driven in no small part by China) expected to account for around one-third of the c$7.5 billion new market space created.

“The findings of the new analytical elements introduced to this latest report edition (now in its eighth year) — including environmental consulting intensity analysis by region — really serve to highlight the huge growth potential of the space as markets such as China move increasingly towards maturity in their environmental governance and service evolution,” Hembrough said. Other key findings in the latest global environmental consulting market assessment include:

Regionally, growth in 2017 was driven by a resurgence in Asia Pacific (+12.5 percent) and, crucially, recovery in the sector’s largest and dominant North American market (+4.1 percent), boosted by the unexpected volume of disaster recovery and climate resilience work (in a year of record-breaking storm activity).

The top five players combined represent 21.7 percent of the total market while the top 10 account for 29.5 percent; in both instances, despite unprecedented merger and acquisition efforts in recent years, the combined shares have seen a downward trend, falling from highs of 24.7 percent and 33.4 percent, respectively, in 2014. The top five environmental consulting players are:

• AECOM (with a 7 percent market share),
• Tetra Tech,
• Jacobs,
• Arcadis, and
• ERM.

The top 10 is completed by

• Golder,
• RPS,
• Ramboll,
• Wood E&IS, and
• WSP.

Ranked 11 to 22 are: Stantec, HDR, GHD, Sweco, Antea Group, ICF, Royal HaskoningDHV, Mott MacDonald, SNC-Lavalin Group, Cardno, SLR and WorleyParsons. Past ranked firms Atkins and CH2M have now been fully incorporated into their new owners SNC-Lavalin and Jacobs, respectively.

The Global 22 together employ approximately 82,000 environmental consulting staff (full-time employees) worldwide, servicing around 220,000 environmental consulting contracts per year, with an average contract value of $77,000.

Based on the key performance statistics reported to — and analyzed by — Environment Analyst for the Global 22, environmental consulting services areas that saw the biggest (double-digit) increases in 2017 were: water and waste management (+22.3 percent), environmental management, compliance and due diligence (+15.2 percent), and climate change and energy (+13.1 percent). In contrast, work related to contaminated land and environmental impact assessment and sustainable development were in decline: -6.2 percent and -5.1 percent, respectively.

In terms of client sectors, the financial, professional and service sector saw the strongest growth, with total segmental market revenues up 13.4 percent in 2017. Revenues from services to the mining, extractive and process industries saw a sharp turnaround year-on-year, rising 9.1 percent globally, reversing a 4 percent contraction in 2016. There was also continued solid demand from infrastructure and development projects (+8.3 percent) and also the government sector (+6.8 percent), but revenues derived from energy and utilities were more or less static (+0.8 percent), impacted by the ongoing lower oil price

2017 was noteworthy for mega-merger activity among the top-ranked firms, effecting real change in the top-tier global environmental consulting rankings (including the pairings of Jacobs/CH2M, SNC-Lavalin/Atkins, and Wood/Amec Foster Wheeler). While 2018, by contrast, saw fewer such transformational deals, as the year drew to a close the announcement of WorleyParsons’ intention to acquire the energy, chemicals, and resources unit from Jacobs, and WSP’s completion of its purchase of Louis Berger will have a clear impact in the coming year. Smaller scale merger and acquisition activity has continued apace however, with the Australian market, in particular, attracting significant investment attention through 2018 among several members of the Global 22.

Information provided by Environment Analyst. The Global Environmental Consulting Strategies & Market Assessment and Global Competitor Analysis reports form part of Environment Analyst’s 2018/19 Global Market Intelligence Service. More information is available at www.environment-analyst.com/global.