After the Election : Vote May Help Environmental Firms Clean Up

If there is one business for which the election could make a difference, it’s the environment--the quest for clean air, land and water that in 20 years has become a $120-billion-a-year industry.

A lot of people on Wall Street are predicting new growth for the industry because the Clinton-Gore campaign, in a letter to environmental companies, has pledged wide-ranging efforts, including tax incentives for recycled products and solid waste reduction, a new clean water act and increased funding for toxic cleanup.

Also, vice presidential candidate Al Gore is a committed environmentalist and author of “Earth in the Balance,” a passionate if bizarre book on ecology. “The first instance of pollution in the Bible occurs when Cain slays Abel and his blood falls on the ground,” writes Gore.

The possibility that such opinions would influence policy had analysts looking for growth stocks before the polls closed. “Engineering and construction firms, such as Fluor, Jacobs Engineering and Foster Wheeler, might benefit if environmental regulations are strengthened,” said analyst Stephen Dobi of Smith Barney.

Grant Ferrier, editor of the Environmental Business Journal newsletter, estimated that a Democratic Administration would push the industry to 9% annual growth the next four years, adding $54 billion to total revenue.

Maybe it will, maybe it won’t. The environment may well be a growth business for the next four years, or even decades to come, no matter who is in the White House. But that doesn’t mean a slam dunk for any company, or that progress will be unimpeded.

A new Administration with its ambitious environmental program could spur the young industry--which only began in the early 1970s with the first clean air and water legislation. On the other hand, half the tax money spent on toxic waste cleanup so far has gone to lawyers and not to cleaning up. More lawsuits, which the Clinton-Gore campaign encourages, could hamper the business.

For while the environment as a cause inspires passion, as a business it has shown itself vulnerable to recession and budget cutbacks, like any other. Even with the federal government pumping $1.8 billion into Superfund cleanup this year and last, the environmental industry has been growing less than 2% a year.

“State and local government budgets are strained, so environmental projects are often postponed,” reports Andrew Loven, head of environmental business for Parsons Corp., the engineering firm.

“In a recession, companies push back environmental spending, or frankly ask how much it will cost them if they’re sued for environmental violations,” says Robert Sheh, president of International Technology, a Torrance hazardous waste cleanup company.

Such postponements and delays dry up cash flow and make it hard on small companies. International Technology, Chambers Development, OHM Corp. and other small environmental companies have all seen rising earnings and stock prices go into reverse.

But big, diversified companies see growing opportunity, particularly engineering-construction firms now bidding for federal contracts to clean up nuclear facilities. Fluor recently won the prime contract for the cleanup of the Fernald, Ohio, nuclear weapons facility--a $2.2-billion, five-year job, with subcontracting work for Jacobs Engineering, Halliburton and Nuclear Fuel Services.

The next big contract will be for the Hanford, Wash., nuclear facility in the spring of 1993, and more than a dozen multibillion-dollar cleanup contracts will follow. Moreover, those Defense Department nuclear cleanup contracts won’t be slowed by budget cutting. “This cleanup effort could provide the jobs and wherewithal to take the economy out of recession,” enthuses Joseph Jacobs, chairman of Jacobs Engineering.

Elsewhere, the environmental industry has grown sophisticated and global. Waste Management Inc., the leading garbage collector and solid waste processor, launched an international subsidiary to handle its $1 billion in sales outside North America.

Fluor and other engineering companies are pushing into environmentally conscious designs for factories, oil refineries and chemical plants, just as they came up with energy-conscious designs under pressure of oil shortages in the 1970s.

And the skills they develop here will have a worldwide market, because ultimately every country’s government will demand that industry be environmentally sound.

Simply put, the environment is a government-driven business. Smart business people recognize that. “The biggest push to this industry came in the early ‘80s, when the government stopped using the words pollution abatement and started talking about hazardous waste, “ recalls Joseph De Franco, president of Separation & Recovery Systems, an Irvine-based water treatment firm. “That forced Congress to act,” and companies to pony up for environmental services and equipment, says De Franco.

Similarly today, Mexico is being forced by its own laws and U.S. pressure to improve its environment--opening up a vast new market for North American expertise and technology.

So is Sen. Gore, derided as “Mr. Ozone” in the campaign, right in his fervor for environmental regulation? Partly right. Gore’s book is filled with personal religious reflections, which are more properly his own business.

But on the environment, cut away the rhetoric and his chief insight is that the world is changing, so environmental practices must change.

That’s why Tuesday’s vote may have ushered in a new era of growth for the environmental business--along with a new Administration.