Money movers invested in sustainability consulting are turning green into green. Pasadena-based Tetra Tech Inc. announced on Feb. 23 that it would establish a $1 billion sustainability-linked credit facility, backed by a lending group led by Bank of America Corp. The plan, which Tetra Tech executives said would increase the company’s borrowing capacity by an additional $100 million, was additionally backed by Wells Fargo Bank, US Bank, and the Bank of Montreal, as joint lead arrangers.

A leading provider for engineering services and sustainability consulting programs providing “clear solutions to complex problems in water, environment, sustainable infrastructure, renewable energy and international development,” according to the company, Tetra Tech has embraced sustainability trends to great effect. The company, which employs over 21,000 people around the world, achieved previously unreached revenues in its 2022 first-quarter financial report consisting of a 12.3% increase to $679.33 million year over year.

Tetra Tech set similar first-quarter records for net revenue, cash flow and backlog. Chairman and Chief Executive Dan Batrack said in a statement that the performance “was driven by double-digit revenue growth and a 120-basis-point expansion in operating margin.”

ESG push

Tetra Tech’s credit facility launch news coincided with several announcements from the company related to environmental, social and governance (ESG) efforts in late February. The company announced on Feb. 22 the appointment of Prashant Gandhi, a sustainability leader and former JPMorgan Chase & Co. managing director, to its board of directors.

Two days later, Tetra Tech announced the company’s president and chief sustainability officer, Leslie Shoemaker, had been elected to the National Academy of Engineering, among the highest honors an engineer can receive. Shoemaker, along with the rest of the NAE Class of 2022, will be formally inducted in October.

The NAE recognized Shoemaker, who joined Tetra Tech in 1991, for the development and application of innovative technology in complex, large-scale watershed management systems and sustainable water programs. Speaking to the Business Journal, Shoemaker confirmed the industry uptick.

“We are seeing our government clients create new agencies, regulations, and funding, while we are seeing our commercial clients for the first time commit to specific sustainability goals that exceed regulatory requirements,” said Shoemaker.

We are seeing our commercial clients
for the first time commit to
specific sustainability goals.
– LESLIE SHOEMAKER
Tetra Tech

The positive trend for Tetra Tech and other companies heavily involved in ESG consulting and investment is largely attributable to favorable industry news and an overall long-term trend toward green technology, according to Vipin Khare, a director of research for the capital equipment sector at Playa Vista-based William O’Neil & Co. Inc.
“It’s kind of back in focus over the last few quarters,” said Khare.

While the sustainability industry’s been on the rise for well over a decade, Khare pointed to several favorable recent news items that have helped skyrocket the trend’s trajectory, including President Joseph Biden’s ESG-heavy infrastructure bill and the direction of interest in the U.S. stock market away from growth stocks toward value stocks. Even the Feb. 28 announcement that Germany would increase its defense spending and green technology investment in opposition to the Russian invasion of Ukraine spelled positive news for ESG investors.

“There is a lot of focus on ESG from all stakeholders,” said Khare. “That’s what’s driving management to make it a part of their business. It might have started from financial incentives, but with focus increasing on ESG, every company has reason to get involved with it.”

Systemic change

John Peto, a principal at Deloitte and U.S. head of Deloitte Digital, said the pandemic and social strife in the United States “caused people to start to ask some pretty profound questions about how they want to live, work and relate to one another,” and those consumers are increasingly voting with their wallet in favor of companies that represent their climate and social values.

“A wide range of climate emergencies and nominally freak events — think wildfires in Australia and elsewhere, 100-degree temperatures in Seattle and the Artic, huge floods, etc. — made the risk of climate change more visceral and personal than previous, more academic or theoretical discussions,” said Peto.

Peto said employees have also increasingly pressured their companies for more leadership on these issues, with a “willingness to vote with their feet if they don’t see it.”
These various pressures have helped shift the investment climate toward allocation of capital based on ESG considerations, Peto said, “increasing correlation between investment risk and ESG risk impacting cost of capital and stock market returns.”

Chiefly on the back of that investment shift — and increasingly friendly global, national and state regulatory environments — sustainability consultants “are really starting to drive systemic change and investment,” Peto said.

Shoemaker noted the two metrics for the newly established Tetra Tech sustainability-
linked credit facility: the reduction of greenhouse gas emissions from its own projects and operational sustainability initiatives, and the number of lives improved by the company’s projects focused on ESG benefits. She said the company is working to foster efficiencies in remote working and virtual meetings, energy-efficient offices and cloud-based IT systems as well.

“Since Tetra Tech’s very founding, we have been differentiated by providing advanced, first-of-a-kind technical solutions that today have evolved to include analysis of big data and predictive models that solve challenging water, environment and climate change problems,” said Shoemaker.

The credit facility provides for up to a 5% reduction in the interest rate grid for meeting sustainability targets, according to Steve Burdick, the company’s chief financial officer.
Khare said that without any apparent substantive argument against green technologies, the positive trend for ESG-related businesses like Tetra Tech would continue for the immediate future.

“I think the need is well established (for ESG services,) and regulatory changes will only be favorable because companies are also moving willingly to these systems. There is some deal of runway left,” said Khare.