Sustainability consultancy acquisitions triple in a year

The merger and acquisitions frenzy in 2021 reflects a surge in pandemic-era corporate demand for sustainability services and expertise.

Piyush Gupta and Sunny Verghese
Pictured centre, Piyush Gupta and Sunny Verghese, the company bosses of DBS Bank and Olam, respectively, talking at the Ecosperity sustainability event in Singapore in 2021. The abrupt rise in sustainability consultancy acquisitions reflects a spike in interest in ESG among company CEOs, says Verdantix research director, Kim Knickle. Image: Temasek

The number of sustainability consultancies acquired by larger business services firms has more than tripled in a year, reflecting an uptick in pandemic-era demand for sustainability expertise, according to a global market study by London-based research firm Verdantix.

There were 13 sustainability consultancy acquisitions in 2021, compared with four in 2020 and one in 2019.

The market is seeing larger consultancies acquire smaller firms, and rivals merging to gain additional and complementary expertise, particularly in sustainability-focused digital technology, noted the report, Green Quadrant: ESG & Sustainability Consulting 2022, published on Tuesday.

The climate crisis is pressuring businesses into action, creating a wave of urgency to announce net-zero targets and improve sustainability credentials. The rise in acquisitions reflects a demand for environmental, social and governance (ESG) expertise currently lacking in some firms, growing sustainability budgets, and a spike in interest in ESG among company chief executives, Verdantix research director, Kim Knickle, told Eco-Business.

2021 Verdantix survey that found that 79.5 per cent of CEOs are now taking a leading role in guiding ESG and sustainability initiatives within their firms, and 57 per cent of firms were planning double-digit increases in ESG spending in 2022.

“Some of this investment will make its way to the growing consultancy market, whose major players are now investing in specialist skills and technological solutions to meet the evolving market demand,” he said.

In April 2021, sustainability reporting consultancy Corporate Citizenship (CC) was acquired by British environmental engineering and consulting firm SLR. At the time of the merger, CC’s Southeast Asia director Thomas Milburn noted that the deal came as growing government regulation and investor pressure were pushing sustainability further up the corporate agenda.

The most lucrative deal last year was private equity firm KKR’s majority acquisition of environmental consultancy ERM, for US$1.7 billion. “Private equity firms have also noticed the growing demand for these services and are now actively pursuing acquisitions in the space,” noted Knickle.

Verdantix’s report emerges six months after a study by Environmental Analyst (EA) projected a surge in demand for sustainability consultancy services this year, after a slowdown in 2020.

Last year, sustainability consultancies saw revenue growth dip to 0.6 per cent due to pandemic pressures, but are readying for growth of 5.3 per cent due to accelerating net-zero and other corporate sustainability commitments, EA’s report found.

The US$38 billion global sustainability consultancy market, which grew by 5-6.5 per cent annually between 2017 to 2019, is projected to add another US$9 billion in value over the next four years, according to EA’s projections.

Consultancies may also be benefiting from a knowledge deficit in companies under growing pressure to adopt sustainability practices. In September, a report by HSBC found that institutional investors in Asia were delaying investments in ESG because of a shortage of expertise or qualified staff.

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