The world’s top management consultancies – like BCG, Accenture, PwC, EY, McKinseys – who for decades have advised the biggest polluters, are now rushing into the business of helping companies cut emissions to become more sustainable, explains Emma Thomasson at Clean Energy Wire. The necessary expertise is in very short supply, so they are retraining staff, poaching environmental experts, and buying up smaller specialist firms. BCG is even running an eye-catching campaign to hire and turn activists into consultants. But many NGOs, and some consultancy insiders, doubt whether the big advisory firms can really deliver as long as their primary focus remains finding ways to maximise client profits. Will it all amount to more greenwashing? Or will it result in real change and wake up their clients to the impacts of climate change, new regulations, the financial risk it exposes them to, the danger of being left in the wake of more proactive rivals, and the reputational damage of business as usual.
While a growing number of companies are struggling to reconcile net zero targets with profitability, one sector has already emerged as a clear winner from the corporate shift to a low-carbon economy: business consultancies. The growth in climate consulting has helped power the big advisory firms to record results in recent years, especially as other parts of their business, like auditing, have seen slower growth or become mired in scandal, like EY over the collapse of German payment group Wirecard.
The decarbonisation opportunity
The fact that there is money to be made in this upheaval is a strong signal that businesses see there is a real opportunity in decarbonisation. That might end up becoming as important a driver of corporate change as ever-tighter regulation and it is certainly the thrust of the pitch consultancies are making to drum up interest in their services.
“This is going to be growth area for a long time,” said Florian Huber, the co-founder and leader of EY Carbon, set up in 2020 to help clients develop decarbonisation strategies. “The need out there is so big and urgent.”
Consultancies face increasing pressure from employees and independent rivals to do the right thing, not to mention booming demand from companies for their help in the energy transition. However, conflicts of interest remain a threat, so tougher regulation of the sector seems essential to make sure the advisory business plays a positive role in the climate fight.
Poor climate performance turns into business risk
The top providers of sustainability services are a mixture of classic management consultants like McKinsey and accountancy firms like EY. The boom comes against the backdrop of major upheavals in the advisory sector, with EY announcing in May it will split off its consulting arm from its auditing business. Other leading accounting firms – Deloitte, KPMG and PwC – could follow EY’s lead, tempted by the possibility of unshackling their consulting arms from a ban on working with auditing clients. That could be particularly appealing as demands for carbon accounting and climate consulting are set to explode in coming years.
Corporate spending on ESG (environmental, social and governance) and sustainability consulting is set to more than double to 16 billion US dollars by 2027, according to advisory firm Verdantix. The main drivers of demand for climate consultancy are the introduction of new reporting requirements, stakeholder pressure and climate-related litigation, according to Connor Taylor, industry analyst for Net Zero & Climate Risk at Verdantix.
“Poor climate-related performance is becoming a real, tangible business risk. Firms do not want to be caught out. However, there is a shortage of climate-skilled talent available, resulting in an uptick in demand for climate consulting services,” Taylor said.
From niche to mainstream
Consultancies have always stepped in to offer expertise in areas where often lumbering corporate clients lack skills, such as digital transformation, diversity and inclusion, and, now, the climate transition. “There is a lot of ignorance, a lack of confidence. Business leaders are looking for crutches and a sense of certainty,” said Leo Rayman, who has just founded EdenLab, a UK consultancy promoting green growth. EY’s Huber said business leaders started to get serious about climate change at the World Economic Forum (WEF) meeting in Davos in January 2020.
“It went from a special niche topic to mainstream. The boardroom didn’t get what the experts were talking about so we provided a translation service,” Huber said.
One client that EY has helped to develop plans to reduce emissions is German industrial giant ThyssenKrupp. The company announced in September it will spend more than 2 billion euros on building a new plant that will use hydrogen rather than coal to fire its blast furnaces. Producing steel is one of the biggest sources of CO2 emissions and the industry is under pressure to clean up or face financial penalties as carbon trading schemes start to bite. If hydrogen could be used to smelt iron, and it is produced by renewable energy, companies like ThyssenKrupp could take a big step towards reducing emissions.
Consultancies have been instrumental in pushing for market-based approaches to tackling climate change, such as carbon trading. In 2007, McKinsey came up with a greenhouse-gas cost curve, a decision-making tool that helped work out what would be the most efficient ways to cut greenhouse gases. Nowadays, consultants are also at the forefront of helping companies prepare for climate change risks – known as climate adaptation – and CO2 removal technology.
“Most big consultancies see the business case of being leaders in the climate space,” said WEF climate expert Nathan Cooper.
“Net zero is becoming the organising principle for business”
A major driver of business for consultancies will be the European Union’s new Corporate Sustainability Reporting Directive (CSRD), which requires listed and large companies operating in the EU to present audited information on sustainability measures and targets. The requirements come into force in stages from 2025.
“This is causing people to realise they have to do something,” Huber said. “The reporting affects more than 50,000 companies and everybody has to be ready in one and a half years. If you take all the experts now and put them on this, it still isn’t enough.”
While regulations and risks are the most pressing concern, consultancies are also increasingly talking about how their clients can make money in the transition. “Net zero is becoming the organising principle for business and it’s going to trigger the largest reallocation of capital in history,” said Dickon Pinner, senior partner and global co-lead for McKinsey Sustainability. A recent McKinsey report found that reaching net zero by 2050 could require investments of up to 9.2 trillion dollars per year until 2050.
Lubomila Jordanova is one of the people already benefiting from that capital shift. She set up Berlin-based start-up Plan A in 2017 to provide software that helps firms measure, report, and reduce their emissions. “We need to change the narrative. Sustainability is the biggest opportunity… it eliminates waste and obsolete elements of the economy, while creating efficiency and circularity,” Jordanova said. One consultant at a major U.S. company, who declined to be named, said many companies are waking up to the need to think about issues like recycling materials because of risks in their supply chains, rather than because they are worried about climate change. “The clients are hard-nosed capitalists. It doesn’t help to frame sustainability as being ‘good’. As soon as you say it is about the long-term health of the company, it becomes more palatable to discuss,” he said.
Overcompliance turns into competitive advantage
One example of a company helped by consultants to think in a more sustainable way is health technology company Philips. The Dutch firm has pledged to generate a quarter of its revenue from “circular” products, services and solutions by 2025, and to offer a trade-in on all professional medical equipment. Accenture helped Swiss telecoms company Swisscom devise a strategy to help it and its customers reduce their emissions by one million tons of carbon by 2025 — equivalent to 2 percent of Switzerland’s total carbon emissions.
“We supported them in assessing the business case behind more ambitious climate actions. The leadership needs numbers and business rationale when committing to more ambitious actions and implicated investments,” said Christian Meyer-Bretschneider, director for sustainability at Accenture Strategy.
Accenture also helped carmaker VW focus its ESG strategy on four major topics from an original 18, setting easily understandable ambitions and key performance indicators (KPIs) for each area including decarbonisation, circular economy, human rights in business and workforce transformation.
“Nowadays, many companies want to go beyond compliance and actually improve competitive advantage,” Meyer-Bretschneider said.
Roland Berger estimates that more than 1,500 businesses worldwide, representing over 10 trillion euros in revenue and 19.3 million employees – including in carbon-intensive sectors – have set themselves net zero targets. The number of companies disclosing their emissions footprint has grown to more than 50 percent of global market capitalisation.
However, Accenture has predicted that 93 percent of the major companies that have committed to net zero targets will fail to achieve their goals if they don’t at least double the pace of emissions reduction by 2030. Bolstering its pitch to help them do that, Accenture said companies require ‘carbon intelligence’ capabilities to embed carbon and broader ESG strategies into their core businesses and across their value chains.
Sustainability vs the bottom line
But many companies are still resistant. While over three-quarters of investors think companies should make decisions that lead to sustainable, long-term value creation even at the expense of short-term earnings shortfalls, only around half of finance leaders are prepared to take this long-term stance, according to a recent survey published by EY.
It is perhaps not surprising that finance chiefs are focusing on protecting the bottom line rather than sustainability in the current tough economic times. However, Jordanova of Plan A said the bigger firms are still committed to reducing emissions. “Larger businesses are doubling down, smaller businesses are not as engaged.” Whether they are reacting to the stick or the carrot, the fact that many companies are suddenly trying to at least seem to be green, means that demand for all kinds of consultancy services has exploded. While big players like EY can offer end-to-end solutions, many smaller start-ups are focusing on pieces of the puzzle, such as providing software to measure emissions.
Shortage of skilled consultants
“There is not much expert knowledge to go around… everybody is needed,” said Hannah Stringham, head of communications for Right, a Frankfurt-based firm which helps companies measure their carbon footprint. “There is an increased awareness of financial risk, exposure to regulation, fear of reputational damage and the impacts of climate change.” Given the shortage of skills, the big consulting firms are spending heavily on hiring more environmental experts, while also training existing staff, and buying up smaller players. The big consultancies have all bought up smaller rivals of late. EY’s Huber predicts there will eventually be a shakeout, especially in carbon auditing when regulators agree on more standardised measurements and reporting requirements. Then players like SAP and Microsoft are most likely to come out on top, he says.
Despite the consolidation in the sector, Verdantix analyst Taylor still sees a big opportunity for boutique providers. “Global players are yet to invest comprehensively in several key areas of climate consulting services, including carbon offset project development. Independent players will continue to thrive in the market, due to the highly business- and geography-specific demands for climate consulting services,” Taylor said.
Shailendra Singh is the chief executive of SustainMantra, a consultancy advising small and medium-sized businesses in India. “Without smaller companies adapting, it doesn’t matter if the big multinationals get it right,” he said, noting that the supply chains of major players are made up of smaller companies. “Most owners of small companies don’t want to show that they don’t know what to do. We build comfort and trust, and tell them what they don’t know.” While some consulting firms are buying in expertise through acquisitions, others are putting a focus on training existing staff. McKinsey, Bain & Company, and Deloitte have all announced ESG training programmes for employees in recent months. And major business schools are adjusting their offerings to include more climate modules.
Turning climate activists into management consultants
Meanwhile, BCG has called on climate activists to join the company, recently announcing an internship program for up to 12 weeks. The “visiting activists” will immediately have the opportunity to advise companies on sustainability and environmental protection.
Richard Roberts, who works for UK climate consultancy Volans, is worried by that development. “The place we most need climate activists now is in frontline politics, deciding the laws that govern the market economy, not advising businesses on environmental, social and governance issues,” he wrote in a letter to the Financial Times. “We’re never going to change that if all the climate activists become management consultants.”
Many climate activists remain suspicious. They note that consultancies are often still paid to protect the status quo, focusing on maximising profits rather than the health of the planet. Consultants continue to advise carbon-heavy industries on ways to appear more sustainable, while helping them lobby against the legislation aimed at forcing them to clean up.
One consultant, who declined to be quoted, admitted his firm had helped a major energy company with a campaign that sought to make it look like it was more committed to reducing emissions than it really was, even though it had advised the client it would backfire. “We tell clients we don’t believe you should do this but you will see for yourself after two years and then you have to reverse course. It is like letting a child put their hand on a hot stove and they learn themselves.”
BCG, a major provider of advice to the oil and gas industry, has faced allegations of greenwashing for its sponsorship of U.N. COP climate change summits, including the one planned next year in the United Arab Emirates.
“The UAE and other Middle Eastern countries need to present a much greener image to the world if they are going to get away with carrying on with oil and gas,” said Pascoe Sabido of campaign group Corporate Europe Observatory. BCG has been helping governments in the region promote the idea of developing more “sustainable cities”, but Sabido sees that as a red herring: “Ultimately it is a big front for continued oil and gas consumption.”
BCG has said it will continue to advise polluting industries as long as they commit to their own decarbonisation targets. CEO Christoph Schweizer told the FT that the group already earns more advising on sustainability than it does in the oil and gas sector, adding the one sector it refuses to work on is coal, unless it is asked to help decommission a mine.
EY’s Huber defends working with dirty sectors: “If everyone tries to avoid the big emitters, the emissions will still be there. Yes, let’s work with them but be purposeful and don’t do greenwashing. What is bad about an oil company committing to real targets?”
McKinsey employees demand real climate action
Last year, the New York Times reported that more than 1,100 employees of McKinsey had signed an open letter to the firm’s top partners, urging them to disclose how much carbon their clients emit. “The climate crisis is the defining issue of our generation,” nearly a dozen McKinsey consultants wrote in the letter. “Our positive impact in other realms will mean nothing if we do not act as our clients alter the earth irrevocably.”
Mike Forsythe, the journalist who wrote that article as well as a new book about a raft of scandals involving McKinsey, told Clean Energy Wire that the company’s efforts on sustainability were undermined by continuing to advise oil and coal firms. “Companies like McKinsey have done some very important work in the field, but it is totally undermined by their work for the big polluters, which our reporting found adds megatons of carbon into the atmosphere,” he said.
McKinsey has said it will continue to work with “hard-to-abate” industries like energy, shipping and agriculture: “Society cannot deliver necessary carbon reductions without engaging with the industries that need to transition the most,” it said in a statement.
Transparency and disclosure
One former McKinsey consultant said the answer was not necessarily to stop consultancy firms from working with polluting industries, but to regulate the sector, for example by demanding that consulting firms account for the emissions of the companies they advise in disclosures, particularly as a requirement for winning public contracts, and creating frameworks for privately held institutions such as consulting firms, PR firms, or law firms that include the emissions impact of their advisory practices in carbon disclosures or ESG reports. “They need incentives and costs to move away from their fossil fuel portfolios or put real restrictions on the types of work they are able to do with such clients. At the moment, they shop their relationships with regulators as a reason to be hired by polluting clients, and with regulators use confidentiality to protect themselves from disclosing obvious conflicts of interest or potentially damaging client work”
Sabido from Corporate Europe Observatory agrees. “Consultancies are also lobbying. And they are also working for governments and using what they’ve learned working for governments with private clients,” Sabido said. “If they are working with fossil fuel companies, they shouldn’t get public contracts.”
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Emma Thomasson writes for Clean Energy Wire
This article is published under a “Creative Commons Attribution 4.0 International Licence (CC BY 4.0)”