What happens to the environment industry in a downturn?

In the past several weeks, the economic news has become progressively bleaker. Many in the environment industry are wondering what impact the coming downturn will have on a sector that has experienced double-digit growth in the past several years.

At ONEIA, we've been talking with a number of our members about what they are currently experiencing - and what our entire industry might expect in the coming months. Here is a summary of what we've heard - and feel free to add your own predictions, questions or observations by joining the online discussion.

What's the current situation for environment firms? Well, it depends ...
Some firms are beginning to feel the impact of the financial crises that began a few weeks ago - particularly if their work depends on financing from private sources, such as early stage companies that are just commercializing their research. Established firms have their own challenges. Many of the environmental consulting firms we have spoken with still have full order books, but are reluctant to hire staff to meet the need because they are not sure what the economy will look like in six month's time. Other firms are continuing to grow, especially those working on projects with secure financing or longer lead times, such as infrastructure. And the wild swings in the Canadian dollar in the past few weeks have introduced their own uncertainty, especially around pricing the US-focused exports of products and services.

Municipal recycling revenues will dip, presenting a challenge and an opportunity
Municipalities rely on sales of the materials from their blue bins to offset the costs of their collection programs. Plummeting commodity prices will mean lower revenues from recycled newsprint and metal - so much so that some municipalities are reportedly warehousing their materials rather than selling them at depressed prices. While this may mean that municipal recycling programs will scale back their spending in the short term, it could be an opportunity for environment firms that can provide new revenue streams from blue box materials.

Environmental businesses could be caught in a short-term credit squeeze. Want to expand your business? Need a bridge loan before a major contract pays off? Let's hope you have a good relationship with your banker, as lending could get a lot tighter in coming months if it hasn't already. A senior economist at one of the major banks told me a few weeks ago that his colleagues had begun scaling back their lending to most of their clients in March of this year. Efforts by governments and central banks to inject more liquidity into the financial system will take time, so a short term squeeze is a definite possibility.

Will clients will become more risk adverse? Yes ... and no.
Many environment firms that sell innovative solutions know it is often difficult to convince clients to try new and innovative approaches. You would expect these clients to become even more risk-adverse in a down economy. This many not be the case, however, especially if what you are selling can easily demonstrate cost savings to a client. So a tougher business climate may, paradoxically, be just the push some companies need to become greener and more efficient.

Spending on public works could increase.
One of the tried and true ways that governments have mitigated economic slowdowns in the past is to spend on public works, such as roads, bridges, buildings, etc. Another bank analyst I spoke with lamented that governments should have announced a program like this months ago to head off the slowdown they should have seen coming. The Federation of Canadian Municipalities is reportedly lobbying the federal government to speed up spending of an estimated $3-billion it has earmarked for infrastructure. If this goes ahead, parts of the environment industry could benefit - especially those companies specializing in green building, transit, sustainable design, stormwater management, etc. Depending how bad the revenue situation gets for governments, however, they could go the tried and true route of deferring such investments to future years.

Government may become more interested, not less, in the environment.
While past experience would tell us that governments will become less interested in the environment in tough economic times, this will not be the case - at least in Ontario. In a province hammered by the decline of traditional manufacturing, our government may look at the environment industry as one of the possible "bright lights" in an otherwise dark time. For the past few years, ONEIA has been promoting a green economic strategy with the province that would address the concerns of our industry and create optimal conditions for our companies to grow, creating more wealth and jobs in the process. Look for movement on this file in the coming months.

We are in the early stages of what could be a significant downturn, so these predictions are just that - a summary of best guesses drawn from across our industry. But we'd love to hear your perspective. Is your company beginning to experience the impact of the downturn? How do you think our industry will weather the economic storm?

To share your views, please click the "comments" link in the bottom right hand corner of this frame.