Environmental Issues Become Big Business
The environment is hot. Environmental issues are center stage this weekend at the Paris summit of the world’s largest industrial nations. And the environment is a focus of increasing concern among Americans worried about asbestos in their walls and ceilings, contaminants in their soil and Lord-knows-what in their air and water.
On a less foreboding level, the environment is hot in financial markets. Fidelity Investments is launching a mutual fund devoted to environmental companies. Investment banking firms are vying to raise financing for new and promising companies in air and water cleanup and hazardous waste disposal.
There is even an environmental venture fund, run by First Analysis Corp., a Chicago research firm. Traditional venture capital backers of semiconductors and software, such as Pittsburgh’s Hillman Foundation, are now putting money behind environmental firms.
What kind of industry is it? Fragmented and relatively unknown, in one sense. Analyst Kay Hahn of Chicago Corp., an investment banking firm, calculates that the combined annual revenues of 60 publicly traded environmental companies totals only $10.5 billion, including the $3.6 billion in revenue of Waste Management Inc., the industry’s largest company, and the $2 billion revenue of Browning Ferris Industries, the No. 2 firm.
But in another sense, the environment--$30 billion in public and private expenditure annually, more than that if you count catalytic converters on automobiles--is on the verge of becoming a major industry of the 1990s.
If you’re a young man or woman thinking about a career, that means that an environmental or chemical engineering degree could give you a good start. If you’re an investor, it means that the field might reward a close look. If you’re in business for yourself, it means that you already know how important the environment has become--or you’ll soon find out.
Big Cleanup Bills
Two decades of laws--from the 1970 Clean Air Act through Superfund and other laws on toxic wastes--have created the regulations. And U.S. industry is spending increasing amounts to meet them. According to a list drawn up by First Analysis, industry and local governments will spend $17 billion in 1990 to clean up current and past wastes and dump sites--up from $6 billion this year.
The bill for removing asbestos will rise to $3 billion from $1 billion. Garbage collection and disposal will go to $24 billion from $18 billion; sewage system improvements to $7 billion from $5 billion; air emission controls (non-automotive) to $4 billion from $3 billion, and nuclear waste management will cost over $1 billion.
Where’s the money for all this cleanup to come from, in a time of budget restraint in Washington? From companies and communities that have liabilities from current or past waste disposal. Not new laws but lawyers at work are the push behind cleanup today.
Things are serious. In New Jersey today you cannot transfer ownership of commercial property without working out liability for past waste disposal.
The U.S. government has banned future use of asbestos, but commercial reality dictates its removal from existing buildings. “Some big companies won’t rent space if you have asbestos in the building,” says Bud Ingalls, chief financial officer of the Brand Cos., a Chicago area asbestos abatement contractor.
Banks and insurance companies are looking very carefully at liabilities. “They won’t lend without seeing a remediation (cleanup) action plan,” says Joseph De Franco, president of Separation & Recovery Systems, a hazardous waste treatment company in Irvine.
Firms that you wouldn’t think of have problems--railroads, for instance, have liabilities over creosote, the traditional chemical treatment for railroad ties that has been judged hazardous. The railroads have pits of the stuff from decades past. But time does not diminish liability under environmental rules.
Seeing how big the job is, railroads are getting into the cleanup business--Union Pacific has acquired U.S. Pollution Control Industries, a small company. Other big companies, particularly engineering firms like Bechtel, Fluor and Parsons, will be getting in, too. “Environmental cleanup is a construction project in reverse,” says analyst Hahn, “it needs a general contractor.”
The big companies will be acquiring smaller firms for their environmental expertise. Such names as Canonie Environmental, Groundwater Technology, Chambers Development can expect to become acquisition candidates--if they’re lucky.
It’s a tough business. Environmental projects frequently take years because legal wrangling over liability precedes the actual cleaning up; small firms can go broke waiting for revenues.
But it’s a promising business, not only here but also overseas, where environmental measures have lagged those of the United States. European countries don’t even have catalytic converters on their cars. But with their leaders discussing environmental issues this weekend in Paris, things are changing there, too. And cleaning up is poised to become a world growth industry in the ‘90s.
