36 INVESTMENT
the UK environmental consultancy market puts its 2009 value at £1.4bn ($2.25bn). While comprehensive and comparable estimates
of market size may be elusive, we can confi dently say that the environmental services market grew strongly in most of North America and Western Europe throughout the 1990s, up until late 2008. Since then growth has been variable, but even with poor macroeconomics, some companies have consistently outperformed the wider market and increased profi tability. Meanwhile, the geographic reach of the environmental services sector has been expanding rapidly, with China and Southeast Asian countries growing, alongside nations such as Canada, Australia and South Africa, where energy natural resource companies have brought in expertise to reduce negative environmental impacts.
Advantages and challenges Given the essential role of environmental services, many players have a perplexingly low profi le in the investment community. “They tend to get overlooked. They’re less sexy and less headline- grabbing,” admits Lee Clements, an investment manager with leading green investment fi rm Impax. They may lack shiny technologies to fi re the imagination, but Clements believes it’s useful to hold stakes in both attention-grabbing cleantech kit and lower-profi le, but often steadier, service fi rms. One of the disadvantages of investment in service companies is their lower margins compared to successful, fast-growing technology fi rms. “Often the margin is lower for engineering and consulting- type companies, with 5 percent typical for a classic consultancy and 12 percent the upper end for more
scientifi c fi rms,” Clements explains. “However, return on equity can often be quite good because these companies have low assets.” Clements advises a long-term approach to investing in service companies. Provided the companies earmarked are operating in healthy, growing markets, they tend to suff er less from cyclical ups and downs than technology companies, so off ering steadier returns.
Growing need Climate Change Capital associate Michael O’Neill agrees, suggesting service companies are often stable. While Climate Change Capital has not invested heavily in services, one of their portfolio companies, Climate Energy, owns sustainability consultant Climate Consulting. In addition, according to industry sources, it took a look at
“Environmental services tend to get overlooked. They’re less sexy and less headline-grabbing,” says Lee Clements, an investment manager with Impax
CREATING CLIMATE WEALTH CREATING CLIMATE WEALTH
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