The Top 200 Environmental Firms: Revenue Resurges
Meeting needs and mandates generates more work, despite market challenges
A government change that began to unfold last year in the U.S., and economic and political turmoil elsewhere, did not curb spending on environmental needs pushed by global demographic trends and natural events. Even with budget constraints and delayed contracting, ENR’s Top 200 Environmental Firms saw their revenue grow 3.8% in 2015 to $53.4 billion. Environmental regulation drew fire for its impact on construction schedules, but it spurred innovation—and growth—last year for many listed companies.
The strength of the American economy was evident, as U.S.-generated revenue rose 10.7% to $41.4 billion—over the $40 billion mark for the first time in four years—but revenue beyond its borders fell by the same proportion, to $11.86 billion.
A full-year of impacts from the continuing oil-price slide predictably hurt environmental work in resource-heavy Australia and Canada, with Top 200 revenue totals down in those countries by 51% and 18%, respectively. But Europe rebounded from its market falloff last year, as revenue generated there rose by 20%. Whether that strength is sustainable in the continent’s post-Brexit era—since the U.K. voted in June to leave the European Union—is anyone’s guess.
“If Republicans win in November’s presidential election, [party nominee Donald] Trump could threaten continued U.S. involvement in the Paris [climate change] Agreement and has threatened to dissolve the EPA if he gets into the White House,” says one Top 200 engineering firm CEO. He adds that while the World Bank predicts only modest global economic growth of 2.9% in 2016, “it’s an improvement” on the 2.4% in 2015. But he adds, “In the U.K., Brexit is a concern, triggering a greater level of caution and even indecision among some client organizations.”
Project delays and cancellations in the oil-and-gas sector likely kept private-sector revenue growth nearly stagnant for the Top 200, up just 0.08% last year, although that sector remains firms’ largest client group, accounting for $24.2 billion in revenue.
Some companies see the power sector, spurred by demand and developing environmental rulemaking, as the new catalyst. “Energy, mining and steel industries are down, but utilities are spending more,” says Dean Pisani, CEO of ENTACT LLC. Burns & McDonnell says new U.S. power industry mandates to handle coal combustion residuals will result in substantial added work. “A very significant surge in coal-fired power plant retirements and [residuals] pond closures are generating significant near-term market opportunity,” adds Gregg Nickel, senior vice president of Great Lakes Dredge and Dock. “If the regulations stay in place [after the election], we see positive impacts for environmental service providers in the power generation industry.”
Partner Engineering & Science Inc. CEO Joe Derhake says a strenghening commercial real estate sector has boosted refinancing that will create greater demand for his firm’s environmental due diligence activity.
But the push to meet environmental infrastructure needs driven by population shifts and changing user demand was clear in government sectors, with firms reporting revenue from state and local work up 3% last year to $17 billion—32%of the total. Federal work rose 26% to $12 billion, reversing recent declines.
The water supply crisis in Flint, Mich., that became a national focus began developing last year as details of state and local decisionmaking unfolded. Some estimate the cost to fix the city’s lead-tainted supply lines at up to $100 million. “Aging infrastructure needs to be addressed and states and municipalities are figuring out funding mechanisms—with or without federal help,” says John W. Braccio, CEO of Wright-Pierce. “Environmental regulations will continue to drive the market.
Making its last independent appearance on the list in 2016 is ninth-ranked water-sector giant MWH Global, which was acquired by Canada-based Stantec, No. 18, earlier this year to expand the parent firm’s worldwide market reach and add construction management at-risk services for the first time, on water-related projects in the U.S. and the U.K.
AECOM benefitted from market diversity in gaining the No. 1 slot on the Top 200, in its first full year of revenue since the late 2014 acquisition of former list giant URS Corp. That firm’s strength in government nuclear and hazardous waste markets propelled AECOM’s proportion of federal revenue to 40% in 2015, from 9% on the 2014 pre-acquisition Top 200 list. Senior Vice President Mark Morris says the firm’s added scale and resources have “allowed AECOM to quickly ramp up” for site investigation and remediation work.
Hazardous waste remediation and management remains the largest single sector for Top 200 revenue—accounting for 26% of the total, and up 1% over last year.
List newcomer Tradebe Environmental Services, a Spain-based waste-management and technology firm now moving into new global markets added significantly to that sector (see story, p. 66). Abatement and remediation firm Northstar Group Services also nudged up the list, with the full impact last year of its late 2014 purchase of sector specialist WRS. Other new entrants among the list’s Top 50 are water-wastewater treatment plant contractor Kokosing Inc. and federal nuclear-sector research and technology developer Battelle, which returns after several years.
Top 200 revenue in the nuclear waste cleanup and management sector rose 35% as work continued at federal sites and in nuclear powerplant decommissioning. Fluor Corp, CH2M, Bechtel and AECOM maintained their top four rankings in that niche.
Los Alamos Technical Associates this year ranked at No. 8 among the top 10 sector firms. The cleanup contractor for the U.S. Energy Dept.’s former gaseous diffusion plant in Paducah, Ky., it completed demolition of the last of 32 inactive facilities at the complex as it returned to the government after commercial uranium enrichment operations stopped. Michael Kennicott, the firm’s chief operating officer, sees an improved nuclear waste market ahead, noting several new federal "opportunities" set for release in the next 12 months, “with impact for the next five to 10 years.”
Comprising 38% of total Top 200 revenue, water and wastewater treatment and supply markets gained new momentum in 2015 for designers, builders and others on the list. “Water deficiencies continue, whether it’s driven by drought or increasing demographics,” says Marshall Davert, MWH Global president of government and infrastructure for the Americas and Asia. “That’s driving water supply portfolio planning.”
Sector work is set to pick up in Canada, with the announced infusion of funding into infrastructure by the new Trudeau government to bolster oil-and-gas revenue declines, and by municipal and federal embrace of public-private partnership project delivery.
Canada has “a standard value-for-money conversation that evaluates whether P3s make sense,” says Michael Orth, executive vice president at Black & Veatch. While he sees similar potential in the U.S., “for some reason, there’s more of a control issue around water and wastewater assets that hasn’t embraced [P3], as you’ve seen in schools, roadways and judicial systems. I don’t have the reason why that is. But we are seeing some movement.”
Jean-Louis Chaussade, CEO of France-based global water infrastructure management firm Suez, was bullish on global opportunity in a briefing to analysts last month. “In China, our growth is speeding up. Environmental worries are at the heart of the Chinese government’s development policies,” he said. Chaussade added that investment in the firm’s regulated water business in the U.S. has increased by 12% in the first half of the year compared to the same period in 2015. Suez also is part of the team awarded a design-build-operate contract for a 50-mil-gal-per-day desalination plant in Mexico’s Baja California region, set to be completed in 2019, with a possible expansion by 2024.
Peter Nichol, president of CH2M’s water business, sees opportunity in more advanced treatment and recovery technology. “Where does wastewater treatment start versus water treatment?” he says. “We’re building factories today and our output is water. We continue to see opportunities for reuse, as the incoming quality that people are dealing with erodes. You can treat wastewater to fairly high degrees now, so a couple more steps isn’t a big leap.”
Although the speed of municipal project movement varies in the U.S., some Top 200 firms still see a less competitively pressured water and wastewater sector. “In the U.S., our markets are very good, resulting in less competition for each project and allowing for higher margins,” says Ron Davoli, CEO of contractor Wharton-Smith, who also sees pickup in Caribbean markets that have been “dormant” for several years.
While continuing fallout from the Flint crisis has resulted in criminal proceedings against Top 200 firm Veolia North America and other companies and engineers linked to the city’s system, some see a possible silver lining. “The Flint problem is not that difficult. It’s aquatic chemistry we all take in college,” says MWH’s Davert. “It has sensitized the public to ask the question: ‘Is our water safe?’ The good news is that we have an answer.”
Experts predict more attention to management of data for improved environmental compliance and capital investment. “The ability to gather more information in real time [with new databases and software helps with real-time control,” says Davert. “We’re doing quite a bit about how to use big data to be smart on the capital spend.”
Industry publication Environmental Business Journal says the U.S. environmental information systems and services sector which generated $1.75 billion in 2015 revenue, “will grow faster in 2016 than in any previous year.” Neno Duplan, CEO of cloud-based environmental data management firm Locus Technologies, says “a confluence of climate change, clean water shortage and desire to lower operating expenses will drive the market to new highs.”
On Aug. 8, Arcadis North America released its first “water index” of 50 global cities, which measures how well they are managing water as a sustainable urban asset. The consultant says no U.S. cities placed in the top 10 in managing water resiliency issues that can affect economic development. According to its findings, Los Angeles ranks near the bottom of the list because of its susceptibility to drought, earthquakes and storms.
“Cities that carefully and creatively use their water assets for strategic urban advantage will ultimately be more livable, safe and competitive,” says Michael MacPhee, president of the firm’s water business.
“Continuing to grow [a country’s] GDP is dependent on water,” adds Orth of Black & Veatch. “The solutions are there, and firms can play a key role in the conversation.”