For those that scoff at the idea of ESG driving any real change beyond the board room I hope that this straw will provide some insight into what I believe is a structural phenomena that has only just started to accrue mass. The winners in this arena will be companies that can bridge the 'clean' world of software and data and the much messier world of manufacturing and industry by delivering insights from the clean world that can make the messy world slightly less messy thereby ensuring social licence to operate.
18 months ago the aspirations of many small caps on the ASX was China. Infant formula companies, milk companies, vitamins manufacturers, wine and other agricultural companies; everyone had a bullseye on China and a universal mantra; “all we need is 1% of the market”. Envirosuite, not one to be contrarian, jumped on the bandwagon signing a “strategic agreement” with a company owned by Zhigang Zhang. Mr Zhang had a history of senior positions with Chinese water groups and was on the board of small cap, Phoslock Environmental Technologies. The capitulation of the Chinese market was a given until accounting irregularities at Phoslock reminded us all of the genteelly described ‘difficulties’ of doing business with China.
Fast forward 18 months and China is a dirty word at Envirosuite. Jason Cooper, CEO, has openly discussed the scale back of the China operations to a supporting function for existing business in China (EVS is a global business with global customers). EVS has pivoted and the second largest market is all the rage; the US. So what is the deal here…is EVS bringing a salad to my 10-bagger party? I thought a quick look at three different use cases in the US, all related to odour, might provide some insight into the US focus.
Landfill
According to the United States Environmental Protection Agency (EPA) there are 2,627 landfills stinking up the US (https://www.epa.gov/lmop/project-and-landfill-data-state). And stinking up the US they are; the EPA claims that in 2019 slightly over 17% of all methane emissions released into the atmosphere in the US originated from landfills. This is a biggish number I guess, and yeah it’s a smelly problem, but what is the context for EVS?
The Bradley County in Tennessee think potential odours from their landfill are a big enough problem to consider paying EVS an annual recurring fee of US$66,000 (~AUD$90,000) to be on top of it. In a very transparent display of public disclosure the county commission even included the EVS proposal in their April 2021 meeting agenda: https://bradleycountytn.gov/uploads/Work%20Session%20agenda%204.12.2021.pdf. Alas, all good things take time in the public service and at the July meeting the Mayor approved for discussions with EVS to continue: http://mix104.info/local-news-for-tuesday-july-20th/
Wastewater Treatment Plants
According to the Report Card for America’s Infrastructure (my personal favourite annual publication) there are more than 16,000 wastewater treatment plants dotted across the US (https://infrastructurereportcard.org/cat-item/wastewater/). These plants are located in and around townships and are not well known for their fresh aroma. The city of Kalamazoo, located in Michigan, has initiated an “odour task force” made up of local businesses including the water reclamation plant and Envirosuite. Sensors have been placed at locations across the city and at the water reclamation plant to monitor odours and gather data over time:https://www.kalamazoocity.org/odortaskforce/q1-2021-report/7396-combined-otf-quarterly-report-2021-q1-draft-rev-1-pdf/file
Townships and Industrials
The city of Kalamazoo is not the only example of businesses working with public organisations and councils to manage the odour’s that their operations can produce. Oft times however it is not so much a partnership as an enforcement in order to operate within or around residential areas. It isn’t really worthwhile trying to pin a figure on the number of large industrials located in or around regional areas in the US but suffice to say I am sure there are lots.
The City of Jacksonville is a good example of a city after a white knight to help identify a foul smelling monster terrorising the local populace: https://m.youtube.com/watch?v=n2d2d3J1HS8. It looks like the team at Envirosuite has come up with the goods with the Mayor of Jacksonville approving budget for US$125,392 (~AUD$170k) to conduct a year long trial to identify the smelly culprit (https://www.jacksonville.com/story/news/environment/2021/07/20/federal-lawsuit-over-jacksonville-chemical-factory-odor-dismissed/8018718002/). One would assume that if the stinker is found the City may even require that the offending party continuously monitor their operations in order to keep their social license to operate.
So, while the market may be smaller, one thing is clear following my few hours of investigation; there is a lot more transparency in doing business in the US than there is in China. I can’t think of another country where I could find so much information from a few google searches (certainly not China). The aim of this straw was not to create an estimate of potential revenue for EVS, rather it was to show that the use case for what Envirosuite is offering is very real and pertinent in our increasingly ESG driven ecosystem. Further, my small amount of investigation is suggestive (to me at least) that Envirosuite has picked a winning horse with its focus on the US market.
