Dramatic changes in energy and climate change policy in the United States will create the biggest consulting market opportunity in 20 years. That is the key conclusion from the recent Verdantix analysis of the U.S. climate change and sustainability consulting market.
U.S. industry will experience a profound market transition under the impetus of policy leadership from Todd Stern, Steven Chu and Lisa Jackson; huge shifts in public procurement in favour of energy efficient vehicles and buildings; and the growing impact of cleantech investments. The long-term impact will be monumental.
In the short-term, consulting practice leaders who face falling demand for core services like due diligence and corporate strategy, need to become climate change rainmakers. Demand is taking off. Existing greenhouse gas cap-and-trade schemes like the Regional Greenhouse Gas Initiative (RGGI) force the power sector to engage with the issue. Sustainability in the supply chain -- cutting back on wastefulness in packaging, product design and distribution -- dovetails with cost reduction. And early movers on climate change, such as Cisco and GE, push competitors to keep pace.
The Verdantix research comprised interviews with 19 climate change practice leaders and an independently-selected panel of 15 customers in firms with revenues of $5 billion. Across all sectors, large U.S. firms look for advice due to a void in internal expertise. Demand focuses on:
- Climate change business strategy with CEO sign-off. When the CEO engages with the climate change challenge the first question is -- what's our strategy? Corporate responsibility directors and the VP Sustainability scramble to call consultants with strategic blueprints based on European or even Canadian experience and insights into future U.S. policy. Sixty percent of the survey group spent on climate change strategy in 2008.
- Greenhouse gas (GHG) inventories to establish the baseline. Power generators like Dominion with facilities in RGGI states have been obliged to calculate their annual greenhouse gas emissions. Now all large corporations need accurate GHG data. For industrial firms such as Dow and Boeing, this requires a partner with deep industrial expertise. GHG inventories saw spending in 2008 from 60 percent of surveyed firms.
- Carbon management plans to plot future direction. When the CEO knows his firm's footprint, the next step is a public commitment to a medium-term carbon reduction goal. But that requires a detailed assessment of carbon emissions abatement options, brand implications and future capital expenditure. Consulting expertise can avoid public mistakes. Seventy-three percent of the firms surveyed said carbon management was the top priority.
- Energy efficiency to slash costs in the recession. Cost reduction is the No. 1 objective for many firms in the worst recession for decades. Coupled with high energy costs, fears about energy security and the correlation between energy and carbon emissions, it's no surprise that energy efficiency tops the agenda for 2009. This is a new challenge for many firms outside energy intensive sectors. A compelling 80 percent of firms in the survey allocated budget in 2009 for energy efficiency programs.
Demand for climate change advice is ramping up. Great -- but not all firms are equal. Which consulting firms have the propositions, people and relationships to profit?
The Verdantix analysis compares 19 of the leading firms in the market on 56 evaluation criteria spanning service offerings, differentiation, engagement examples, vision, strategy, customer mindshare and global presence. To win projects in this new market consulting firms should:
- Grab individuals with proven climate change business expertise. Why do execs hire consultants? To get access to specialist expertise. With climate change experts in very short supply, consultancies need to poach, acquire or rapidly train their team to win pitches. In the last four months LRN acquired GreenOrder and Stantec bought Jacques Whitford. Staff at NGOs, such as Rocky Mountain Institute, Pew Center and Business For Social Responsibility (BSR), are highly sought after.
- Leverage existing relationships. The huge Energy & Utilities practice at Booz & Company, led by Eric Spiegel, ensures the firm has board room access to pitch climate change strategy development projects. ERM, a 3,500 employee high-end environmental consulting firm, has long-standing client relationships in emissions-intensive sectors. The proof? Net consulting revenue increased 19 percent in the last financial year.
- Invest in thought leadership. Professional services firms are notoriously poor at marketing because it's not billable time. But McKinsey & Company achieved the highest familiarity in the Verdantix customer survey through its heavy marketing of abatement cost curves and energy efficiency offerings. Small is also beautiful. Boutiques, such as GreenOrder and Blu Skye, have built remarkable mindshare in the last four years.
- Offer a broad set of branded service offerings. Faced with a fast-changing policy prognosis, clients scramble to understand what they should do. Winning consulting firms, like ENVIRON and CH2M Hill, offer branded offerings such as "carbon management" and "building energy efficiency" to ensure senior budget holders understand the offer. A lack of familiarity among buyers requires perfect clarity from suppliers.
- Connect and resolve multiple issues. Two years into their climate change programs, senior execs understand that they need to resolve interlinked challenges in areas such as supply chain sustainability, data center energy, waste reduction, carbon regulations and renewable energy tax incentives. Professional services firms, including PwC, AT Kearney and PA Consulting, bring the program management capabilities to resolve multiple issues.
The Verdantix analysis of 19 consulting firms found that CH2M Hill and McKinsey stand out from the pack. Other leading organizations include: 1,250-employee environmental business consulting firm ENVIRON; commercially-aware environmental consultancy ERM; ICF International which has a strong focus on the government sector; and global professional services firms Deloitte and PwC. Among the management consulting firms Booz & Company and AT Kearney stand out -- although they are not on a par with McKinsey.
The challenge for consulting firms to win in this growing -- but potentially huge -- market is to convince managing partners to invest in a new practice group during a painful recession. Repurposing management consultants will only go so far. Our research demonstrates the need for active marketing, branded propositions, thought leadership and recruitment of a core group of experts.
To access the full report, "Green Quadrant: Climate Change Consulting USA" please visit the Verdantix website at www.verdantix.com.
David Metcalfe, PhD, is a director of Verdantix, an independent analyst firm, offering unique analysis of climate change, sustainability and energy issues.