The State of the Sustainability Consulting Industry
Current State of Industry and Recent History
The sustainability consulting industry has grown steadily over the past decade as the concept of business sustainability has been validated, global environmental issues have gained prominence, and general environmental consciousness has risen in the United States. Today, all of the major management consulting firms have sustainability-focused practice areas and there are many boutique firms with specializations in topic areas as diverse as reporting & compliance, materiality, stakeholder engagement, PR and marketing, supply chain & logistics, etc. Work in the field can be grouped into the following categories:
- Strategy and Planning (Big picture sustainability as a lens to view their business)
- Technical Support (building design & construction, energy services, waste diversion & recycling, water & wastewater service)
- Testing, Auditing & Verification (Third-party review of sustainability data)
- Sustainability Marketing (PR, communications, branding)
Ten years ago, sustainability consulting was a very niche field, wholly represented by small boutique firms. In 2013 the Strategic Sustainability Consulting firm did a study of the industry and found that there were roughly 250 sustainability consulting firms in the US, and that the majority (88%) of them had fewer than 15 employees[1]. According to the authors of the study, “what we quickly realized was that the field itself was amorphous and changing almost every day. New players were cropping up every week, a wave of mergers and acquisitions swept over many of the most notable companies, and more than a few of the small consulting firms folded in the wake of the recession.” [2]
Around five to seven years ago, consolidation occurred through some notable acquisitions. Deloitte, in particular, acquired a number of boutique firms, and the other major firms began building specific practice areas around sustainability. BCG began its partnership with the MIT Sloan Management review studying corporate sustainability in 2010 and McKinsey published their first “Sustainability and Resource Productivity” report in 2012.
According to market research firm Verdantix, in 2015, large corporations spent $877 million on management consulting advice related to sustainability reporting, energy efficiency, sustainability risk assessment, sustainability strategy, sustainable supply chains and product sustainability[3]. However, the report also notes that this was below industry expectations, and growth has not been as strong as the large firms expected.
Organizational Structure of Key Firms in the Industry
Within small boutique firms, employees are organized around specializations and key tasks in relatively flat org structures, which is not very instructive in the context of learning about the industry and its priorities. However, within the large consulting firms, some interesting patterns can be observed from how the sustainability practice is organized and located in the organization.
- Sustainability as a functional group that cuts across industries
- Sustainability grouped with other related topics such as social impact or supply chain, and how that affects the influence of sustainability
- Sustainability experts with other (often dominant) expertise in a particular industry or other functional area
Additional details on the four largest firms:
BCG: Sustainability work is a “Capability” practice which cuts across industries. Experts in the firm are specialists in multiple areas — the energy, industrials, auto, and health care industries, and the social impact practice. Most of the experts have a dominant specialty outside of sustainability.
Deloitte: Sustainability groups are within the supply chain services area and the risk solutions service area. The group was created through the acquisition of boutique firms. Most clients are sustainability groups of F500 companies.[4]
Bain: Sustainability is part of the “Sustainability and Corporate Responsibility” Service Line. Most of the “experts” have a dominant specialty outside of sustainability.
McKinsey: “Sustainability & Resource Productivity” is a business function practice, which cuts across industries. Many of the experts in the practice are dedicated to sustainability, others have another dominant functional or industry focus.
In general, most of the sustainability experts at the major consulting firms also do significant amounts of work in other functional areas. This could be viewed as an indicator that sustainability work alone is “not enough to pay the bills”. It could also be an indicator that sustainability advice is best given through someone who understands the business drivers from another perspective in the organization. It also seems likely that touting or exaggerating the amount of sustainability work a firm does is in its best interest as a mild form of greenwashing.
Material Issues
As service businesses, consulting firms do not have especially large physical impacts. However, (at least for the large firms) their high fees necessitate a lot of air travel, which could pose a small financial risk if fossil fuel prices rise dramatically. However, the most material issue for every consulting firm is young talent — talent that is increasingly concerned with sustainability.
Talent
The fight for talent and expertise is one that consulting firms are constantly engaged in. In an interview on how the firm was embedding sustainability values in the organization, McKinsey’s global managing partner Dominic Barton explained that for the “younger generation, this is really serious for them. So I think the pressure in a sense is coming from the bottom, which I think is great. The people are saying what are we doing, Dom, what is your carbon footprint, because we probably think it’s pretty bad, so what are you doing about it? I mean, I get those questions from first-year people.”[5] In the struggle to attract talented young people, firm values matter, and so for consulting firms whose primary asset is human capital, aligning actions with values that young people care about is a material issue.
Client-driven issues
The other material factor for sustainability consulting firms is not a single issue, but rather a category of issues: the needs of their clients. Since project scopes are largely determined by the client, much of the work of consulting firms is driven by the key sustainability issues of the firm’s clients. According to analysis done in 2015, half of spending on sustainability consulting engagements is by the heads of sustainability at client companies, while the other half is spent by a variety of other functions[6]. From conversations with consultants in sustainability practices, work done for a client who sits in the sustainability function of the organization is often to assist a small and overworked sustainability staff to strategically allocate resources, design programs, and make the business case to the rest of the organization. For clients who are in other functions, the sustainability component could by any one of a number of things.
The industries that hire sustainability consultants with the highest frequency tend to have large physical footprints and be vulnerable to environmental regulations. According to a 2014 survey of sustainability consulting firms, retail, heavy industry, government/not-for-profit, telecoms/media and utilities sectors show the highest levels of engagement, with around 40% in each sector saying that sustainability is central to their business strategy.[7]
Levers for Impact
Although sustainability consulting firms do not have much scope for reducing their own social and environmental impacts, they do have important leverage to drive change. Many consulting firm leaders are important advisors to CEOs of the world’s largest companies, and thus can exert a strong influence on the direction of large corporations. When asked about how he can convince CEOs to take sustainability seriously if they don’t hire McKinsey with that in mind, Dominic Barton explained “We have this valuation book that a lot of CFOs look at, and when you think about creating value I think you have to start thinking about these are sort of measurable factors that affect the performance of an organization. When we think about cost and performance and so forth, you have to think about total cost. Real costs.”[8] In addition to the personal influence that can be exerted through roles as trusted advisors, the thought leadership and publications of the major consulting firms have ripple effects that reach far and wide in the business world. Strong persuasive writing skills and innovative frameworks or strategic theories can influence the leaders of multiple organizations to take a more serious view of sustainability. In my view, this is a very powerful lever that sustainability consultants at the large firms control — the firm brand and reputation for thought leadership coupled with sustainability-oriented values.
Future of the Industry
The sustainability consulting industry grew from virtually nonexistence 10–15 years ago to become a sizable consulting segment today. However, the market research firm Verdantix estimated in 2015 that the industry would grow in revenues from $877M to just over $1B by 2019, a slow growth rate of just 4%.[9]
One trend that has always been part of the sustainability consulting landscape is freelancing. Today, freelancing or the “gig economy” enabled by communication technology has gone mainstream in many knowledge-based industries, and sustainability consulting will likely continue to have a cottage industry of small firms and solo practitioners with deep specialization.[10]
The content of the sustainability consulting work is also evolving — In 2013, cost-saving resource efficiency was the primary driver for sustainable business practice followed by compliance and reputation or brand.[11] Today, the latest McKinsey Global Survey on the topic finds that the top reason firms pursue a sustainability agenda is because it’s part of their values. I think that as the younger generation, who have shown a strong preference for working for mission-driven companies, take more senior positions within large companies, this trend will only accelerate. More and more companies will be led by people who grew up accepting climate change as a generation-defining threat, and who view working for a company with an ethical reputation and mission to be a source of significant social capital. This will make not embedding sustainability into the core of your business a significant human capital risk, and “table stakes” in the competition for talented workers, and an opportunity for sustainability consultants to step in.
[1] Strategic Sustainability Consulting Blog “State of the Sustainability Consulting Industry”. 10 Jan 2013. <http://www.sustainabilityconsulting.com/blog/2013/1/10/state-of-the-sustainability-consulting-industry>
[2] Strategic Sustainability Consulting Blog “By the Numbers: US Sustainability Consulting Market”. 31 Jan 2013. <http://www.sustainabilityconsulting.com/blog/2013/1/31/by-the-numbers-us-sustainability-consulting-market>
[3] Verdantix Forecasts The Global Sustainability Consulting Market Will Exceed $1 Billion In 2019, Far Below Expectations Of The Consulting Industry. 15 Feb 2015. < http://www.verdantix.com/newsroom/press-releases/verdantix-forecasts-the-global-sustainability-consulting-market-will-exceed-1-billion-in-2019-far-below-expectations-of-the-consulting-industry>
[4] Conversation with Sustainability Manager at Deloitte Denver
[5] Harvard Business Review “McKinsey’s Head on Why Corporate Sustainability Efforts Are Falling Short”. 13 Mar 2018. < https://hbr.org/ideacast/2018/03/mckinseys-head-on-why-corporate-sustainability-efforts-are-falling-short>
[6] Verdantix 2015.
[7] Strategic Sustainability Consulting, “Results of the 2014 Sustainable Business Trends Tracker” 2014. <http://www.sustainabilityconsulting.com/blog/2014/3/25/and-the-survey-saysthe-results-of-the-2014-sustainable-business-trends-tracker>
[8] Harvard Business Review 2018.
[9] http://www.verdantix.com/newsroom/press-releases/verdantix-forecasts-the-global-sustainability-consulting-market-will-exceed-1-billion-in-2019-far-below-expectations-of-the-consulting-industry
[10] Triple Pundit Blog “Sustainability Spawns New Trends in Consulting” 19 May 2010. <https://www.triplepundit.com/2010/05/sustainability-consulting/>
[11] Strategic Sustainability Consulting, “Results of the 2014 Sustainable Business Trends Tracker” 2014. <http://www.sustainabilityconsulting.com/blog/2014/3/25/and-the-survey-saysthe-results-of-the-2014-sustainable-business-trends-tracker>
