The newly-appointed managing director of this South African firm's UK outpost, Sam Preece, gives Environment Analyst his impressions of how EBS is challenging the norms, disrupting the wider EC market and improving its clients’ profits by upwards of 30%.
Earlier this year EA issued an Insight Report focused on the environmental consultancy sector in Africa, looking at how some of the leading multinational players are servicing this region and meeting their clients’ African needs, either through permanent on-the-ground networks or by working remotely often with the help of local partners (EA 01-Jun-17).
In something of a reversal of that piece, this Company Insight finds out how one African born and bred firm, EBS Advisory - whose branding is a nod towards its Environmental Business Strategies focus - is now building a network internationally in a bid to draw more business back to its heartland, and at the same time shaking up the status quo.
Established in South Africa in 1999 by the now CEO James Brice, EBS Advisory describes itself as an environmental and sustainability service provider to the financial, agricultural, industrial and mining sectors in Africa. Now operating from a network of six offices across Sub-Sahara Africa which link to headquarters in Johannesburg, at first glance EBS appears to fit amongst the ranks of numerous other local and regional consulting firms operating across the continent.
But, with its aspiration to ‘live off the earth’s interest, not its capital’, on closer inspection it soon becomes apparent that this SME is quite distinct from its competitors and based on a model that is less familiar. And with over 700 studies undertaken for more than 120 clients in 34 countries - spanning four continents - since its inception, it is certainly a business that deserves a closer look.
There is no shortage of African-grown firms offering EC services across the length and breadth of the continent, with the greatest concentrations to be found in South Africa. For the most part, however, they tend to be either country or sector specific, and only a relatively small number can claim truly pan-regional multidisciplinary service offerings. It’s not an easy marketplace to compete in, with huge commercial and regulatory disparities from one country to the next, and given the still developing nature of the region, much of the work is generated at an international level.
As a result, the procurement decision for advisory services is still being made closer to the source of the capital, rather than the destination. So for many players, with their deep knowledge of localised norms and regulations, not to mention their cultural familiarity with operating in an African context, a key strand to their revenue streams is work sub-contracted to them by the EC sector’s global leaders.
Not so for EBS.
"The EBS model is different. We are an African EC business working to international standards and project delivery expectations, advising our clients on how to manage their risks but predominantly how to deploy ESG expertise to maximise their returns. We prefer to work for our own clients; we lead the thinking and we hold all the IP," Preece asserts. This independence is more than just a source of pride, it’s the backbone of its existence and the defining distinction between it and other African environmental consulting competitors. Because, above all, the firm’s overriding aim is to partner with its clients over the long-term, acting - as the firm’s full name suggests - as an advisor.
And that’s the crux of it because the difference between advisor and consultant is subtle yet nevertheless crucial.
Preece goes on to elucidate: "We think from our client’s perspective. It’s something that a lot of people claim they are doing, but actually the structure of the market, particularly in the African context, means that they are intrinsically dis-incentivised to do so because whether you’re a global corporate consultant servicing your multinational clients, or a local player subcontracted to work on the ground, those EIAs and site investigations that are a consultant’s core activity are your base revenue.
"What EBS does is advise - whilst we can deliver world class services we don’t actually want to be doing EIAs or site investigations. It means we are effectively turning off work all the time and that’s puts us in a wholly different position. We are trying to steer people through their business journeys - to help them plot a route - by managing environmental and social risks. But, above and beyond merely compliance, what we are trying to achieve is value creation through ESG activities by looking for the upsides and reducing unnecessary expenditure."
He says it is not uncommon for some clients to ask EBS to do work as part of an external and/or internal compliance process that they believe is simply not necessary. And if so, "we'll point that out to them and they might ask us to do it regardless, which can cause something of a professional dilemma," Preece admits. "But EBS’ professional reputation as an advisory partner is staked on being able to refuse that request, explain why, and then stick to our advice."
That’s not to say that EBS can’t do the consultancy element, it can and will if absolutely necessary, but – and it’s strange to hear – it doesn’t actually want to do it!
Of course, as the firm grows and takes on new clients that may not always be an easy stance to take, particularly for those who have known Preece from some of his previous more conventional consultant/client relationships undertaken during his two decades spent in other EC firms (notably his 13 years with AECOM). He concedes that this can cause "tension" with some clients, and for Preece personally - coming from a major corporate background where topline revenue is king - it goes against the grain to turn down any work! But he insists EBS’ approach ensures they are not only looking at value but also seeking recognition for creating that value.
Has it alienated any of EBS’ clients so far, we ask Preece? "Far from it," he replies, "if anything it has excited a lot of people!"
Perhaps then there is an element of environmental consultancy work being done unnecessarily under the guise of compliance by the wider EC sector? on this, Preece is blunt: "Not at all, it's being done for a very clear and valid corporate governance purposes that overrides actual risk management and mitigation – it can, however, sometimes be corporate risk management led rather than true environmental social management; hence the former is driving the process rather than the latter, and that can then be over-specified for the context."
"Of course you could make the counter argument that it is simply exceeding the minimum requirements," he acknowledges, "but the depth of expertise and knowledge, in terms of clients and context, offered by EBS means that we can advise our clients with total confidence where and when there is no true risk, and that rather than a client for example spending a million dollars’ worth of site investigations, all they actually need to spend is $20k on an insurance wrapper and address the risks through an adaptive management approach. From our unbiased third-party perspective, we give our clients the confidence to challenge the norms, and to manage more risk with less activity. We’re minimising ‘commodity-service fee’ type discussions and maximising value-creating advisor and leadership activities."
"It’s a fairly heavy disruptor role!" he concedes. "But actually, there aren’t many disruptors in environmental consultancy. Yes, technology is changing what the industry can offer, providing ever deeper insight and data quality, but not many people are questioning the commercial structuring of how it is delivered because they often have simply too much at stake."
Financial focus on retainer format
The advisory positioning, reinforced by unquestionable independence, is not the only distinction that sets EBS apart. It has chosen very deliberately to focus its ESG service provision on the financial sector, namely private equity funds and firms, asset managers, hedge funds and banks, dealing on a daily basis with Development Finance Institutions (DFIs), General Partners (GPs), Limited Partners (LPs)…
In fact a whopping 90% of the firm’s revenue is generated through the financial sector, whilst just 10% comes from what might be considered more traditional clients within the EC sector such as oil & gas or mining operators, energy providers, manufacturers, etc.
To succeed here, it means that the team must demonstrate not only fundamental environmental expertise but also a deep and comprehensive understanding of the workings of the financial sector.
What EBS might lack in staff numbers, it far makes up for in terms of experience and expertise with all of the 65-strong team benefiting individually from decades of experience in either the environmental or financial sectors, or indeed both. In fact, that level of seniority is the foundation for the firm’s credibility and on what it has staked its reputation. It’s a unique combination, Preece feels. And within this niche, EBS has established its credentials as a partner on both sides of the financial equation - lowering their clients’ cost of capital but also optimising returns on their investments.
In fact CEO Brice himself claims: "EBS Advisory is the leading ESG advisor to financial institutions and PE managers on a pan-African basis, with over 70 private equity fund managers, pension funds, asset managers, banks and impact investors as clients since 1999."
And Preece is absolutely clear on the value of ESG factors in any given project, whether it’s an HIV programme, an energy asset or an egg farm, because ultimately, he argues, ESG factors are proxies for good management and with those in place you can maximise both the value and ultimately the project success.
So how successful, in quantifiable terms, has EBS been in assisting this most demanding of client groups to add value to their investments? The figures claimed by Preece are impressive: "We are seeing the improvement in the carry to PE fund managers by between 35% and 55%." And EBS has seen its own profits grow by 40% over the last 12 months.
How is this very focused and highly niche combination, marrying comprehensive environmental and financial know-how, provided to its clients? Well here too EBS has thrown out the rule book - with the business based on a retainer model, precisely because of this advisor-partner positioning
"The provision of ESG services to clients who already have extensive knowledge of the compliance issues requires a level of seniority and experience that is not easy to find in Africa, quite simply because of the nascent development of the market. Most EC competitors would have to parachute in expats from other parts of their global operations, who ultimately may lack a thorough understanding of the context or the complexities of the project. What our retainer model offers is flexibility; it’s a pool of experts on hand without the need to draw up countless contracts for each element of a given project, and that reduces both the headaches and the cost for fund managers," says Preece.
So how does the recently-established UK base headed by Preece fit into EBS’ wider plans? UK MD Preece is absolutely clear that there is no expectation that work will be undertaken from London (or EBS’ other international outposts in Brussels, Washington and Paris) with delivery exclusively from the firm’s African offices (which is another factor making EBS extremely cost competitive - by up to 30% depending on currency exchange rates - although that’s not the key reason to appoint the firm, Preece is keen to stress). Instead, his role is to act as EBS’s representative in London which is home to a significant number of financial institutions and from where funds are managed.
In fact, he notes, there are perhaps only around 80-100 private equity firms based in Africa in total, of which the majority are in South Africa, whilst more than 200 are based in London (with interests not just in Africa but in other developing regions as well). And many of these have yet to be introduced to the benefits of the EBS model! "There’s certainly a lot of untapped potential," Preece says he believes.
But business development isn’t the only element, he adds. "It's becoming increasingly important to spend time with our clients as we build relationships with them. They have very exacting expectations on delivery and communication. My role is to be the local point of engagement with the fund managers and investment teams." It all comes back to that advisory role, providing a level of ongoing support and collaboration that, Preece feels, should be paramount in the consultant role.
Going forward there are plans for further expansion, including four new African offices, while a handful of M&A transactions may also be on the cards. There aren’t any hiring or revenue targets as such, states Preece, but diversification is certainly a priority, and the success of the EBS model is leading to clients asking for support as they operate in other developing countries (outside of Africa).
"We are looking at new product areas for example green bonds and climate bonds - EBS is aiming to be the first African-headquartered certifier of climate bonds. We’re also looking at climate change-related obligations at national level and how these are being implemented. There is growing need for investment, private funding and capital projects in a national context. I’m looking at what technical leadership we need to give us access to this space," Preece indicates.
And also part of the process of expanding the offering is forming partnerships - to provide a broader platform and access to, for example, debt provision agents, governmental specialists and legal risk compliance specialists - as it has forged with All Africa Advisors, a project developer and transactional advisory specialist, with which EBS is working closely in London. And ironically, despite his perhaps somewhat dismissive comments about more traditional EC providers earlier, Preece does see link-ups with some of the ‘usual suspects’ going forward.
"EBS is never going to have (nor wants) 100-strong teams of people dedicated across the spectrum of technical specialisms that traditional consultants have, but there will be those sorts of requirements in the projects that we are working on. So actually I see we are going to be a huge enabler for EC consultants, our other partners and our clients as they seek to access the potential of the African market."