AECOM : ESG Advisory And Biodiversity Leadership Call Transcript

Corrected Transcript

14-Jun-2022

AECOM (ACM)

ESG Advisory And Biodiversity Leadership Call

	Total Pages: 14
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AECOM (ACM)	Corrected Transcript
ESG Advisory And Biodiversity Leadership Call	14-Jun-2022

CORPORATE PARTICIPANTS

William J. Gabrielski

Senior Vice President-Finance/Investor Relations & Treasurer, AECOM

Robert Spencer

Global Lead-ESG Advisory, AECOM

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OTHER PARTICIPANTS

Andrew John Wittmann

Analyst, Robert W. Baird & Co., Inc.

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MANAGEMENT DISCUSSION SECTION

Unverified Participant

Andy, go ahead.

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Andrew John Wittmann

Analyst, Robert W. Baird & Co., Inc.

All right. So, Good morning, everyone, and thanks for joining us today. I'm really happy that you chose to spend some of your time with us. I'm Andy Wittmann, I'm the senior research analyst at Baird that covers the consulting and engineering space. I'm really happy to be joined by some of the people from AECOM today. Many of you will be familiar with Will Gabrielski, who's leads their IR function as well as their treasury. And then today's really special guest speaker to talk about ESG is Robert Spencer. Robert was reported earlier this year as the head of the ESG strategy of business at AECOM.

And we're going to take your time today to just go through a few of the slides, learn more about what ESG strategy consulting is. I've got some questions lined up and we'll also be monitoring the chat box here today. You'll see it on your screen if you have a question to submit. I'll be monitoring those and we'll have some time today to go through some audience questions as well.

So with that, we're going to start off with Will just doing a kind of a quick overview for some of you who might be a little bit less familiar with AECOM before we get into the nuts and bolts of the ESG strategy with Robert.

So Will, why don't you take over here and give us a little intro?

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William J. Gabrielski

Senior Vice President-Finance/Investor Relations & Treasurer, AECOM

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AECOM (ACM)	Corrected Transcript
ESG Advisory And Biodiversity Leadership Call	14-Jun-2022

Absolutely. Thanks, Andy. And for everybody's benefit, the disclosures and risk factors are in the front of our deck. But like Andy said, I'll just give a quick two-minute overview of AECOM and then turn it over to Robert for his remarks and we'll do some Q&A.

AECOM is a pure-play professional services firm, and we like to say we're also a purpose driven company, and that purpose is delivering a better world. So we have about 50,000 professionals across AECOM spanning disciplines from advisors, engineers, consultants, program managers, scientists, architects. And they're all working on one goal, which is solving our client's most complex challenges. So if there are two takeaways from my quick comments today, I want it to be that we have a very resilient business model and that there are a handful of key of secular growth trends behind our markets right now. So I'll start with those trends.

One, a global infrastructure investment renaissance, and that's thing is like the Infrastructure Investment and Jobs Act in the US. But there's a number of similar programs globally that are driving our business today. The second one would just be the world adjusting to post-COVID. So changes in transit and travel, how people work, how supply chains function and of course now is very prominent is energy transition. And finally, on ESG, which will be prominent today as cities and companies across the world are advancing new strategies built around ESG, and what does that mean for AECOM?

And so that's really great for us. We're positioned for all three of these megatrends. If you think about our rankings, number one, we're in the top few in every one of our core markets, be it transportation, environment, water, green design and all of the subcategories under those. And I think importantly, specific to AECOM, the markets only now beginning to truly appreciate the difference between who we are today versus what is perceived as the traditional EPC model.

So I said we're a pure-play professional services firm and we have a new strategy called Think and Act Globally, that's been in place for the past few years. And you can see today we're quite a different company that we were in the past. We lead our industry on margins. We aren't acquisitive. Our focus is on compounding earnings and cash flow on a per share basis at the highest rate of the industry, which we've been doing for some time.

And I'll just - I'll finish up with what are the key attributes of our business, the inherent attributes, as we call them, that make us very predictable and attractive and produce strong returns, and is that highly variable cost structure so we can flex up and down with demand. The fact that we're focused exclusively on higher margin and lower risk work, which drives very consistent performance. Backlog visibility, we're sitting near all-time highs across our backlog. We have really good clients. They pay their bills on time and we're capital-light. So that produces very consistent cash flow conversion every year.

And then finally, in terms of, I know everyone is focused on inflation, the nature of our contracts allows us to recover costs in most instances, or our book is turning so frequently, we're able to reprice our work to manage through what is now pressure on the global supply chain, and for us, that's labor. And so, we've built what we think is the best model in the industry to manage that, but also to attract labor to our platform. So, you see strong return on capital, free cash conversion, and we think you'll see those benefits across cycles.

So, with that quick intro, I just want to turn it over to Robert. He's going to take you through our ESG business and really how we're helping clients face those big challenges that they have today. Thank you.

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Robert Spencer

Global Lead-ESG Advisory, AECOM

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AECOM (ACM)	Corrected Transcript
ESG Advisory And Biodiversity Leadership Call	14-Jun-2022

Thanks very much, Will. If I could have the next slide. Thank you very much. There it is. So, hello, everyone. My name is Robert Spencer. I'm the Global ESG Advisory Lead for AECOM. So, I'll just take a minute to say a little bit about my role and my profile at AECOM. So, I've been with AECOM and its legacy companies since 1998. My original background was in international development, working on UK Aid contracts for a legacy company, Scott Wilson in Nigeria and in Peoples Republic of China.

That was about five or six years of that kind of IDEV work. And then I came back to the UK and got involved in what would now be called circular economy, a program that was run by the UK, Department for the Environment on Industrial Symbiosis. We run a network across the UK, looking at how to reapply waste that was going to landfill, that was going to incineration, how to get more value from that, classic circular economy thinking.

We've run that program for about five or six years, very successful, diverted millions of tons from landfill. And then for the last, sort of, 10 years, I've been doing a mixture of in-house corporate sustainability strategic work for AECOM itself and its predecessor companies URS and Scott Wilson. That was my sort of lineage. And twinning that with client facing work, with business development, developing our markets, developing our tools and approaches and involved in quite a lot of innovation as well around some of those key themes, circular economy, nature-based solutions and natural capital as we would call now, and of course decarbonization and net zero with climate as king.

So, I took up this role earlier in this calendar year. And it's been a fantastic opportunity to really capitalize on AECOM's massive technical wealth of understanding and solutions around sustainable development and ESG. And what we're doing now is we're pivoting that vast sort of technical knowledge and practice network that's global in nature and covers all manner of technical solutions from climate risk assessments to circular economy strategy, to decarbonizing a real estate portfolio, drawing up that into specific advice and strategic advice that we can give to the highest levels of our clients into the C-suite, into the senior management executive rooms and into the board at times as well.

So, that's been a really interesting way in which we've been growing our services, creating more high value opportunities for us to provide advice to our clients, which then acts like a tip of the spear. It sort of creates more opportunities downstream for our technical services to be realized and implemented on the basis of the strategic opportunities and risk amelioration that we can help our clients with looking through that ESG lens.

So I think that's what the focus is going to be for the next short to medium-term period. We've got our strategy. We've got some great client examples under our belt. So, you can just see a couple of them on this slide that I've got on here. One of the pieces of work that we did fairly recently for one of the large infrastructure clients or core clients in our AECOM Europe Business, Network Rail, supported them with their 2050 Environmental Sustainability Strategy. That's just the kind of work that we're calling our ESG advisory work that was working with board level, non-executive directors within Network Rail, senior managers, operational executives, and really segmenting out sustainability in ESG into some of those key priorities for them which, for them, was around energy efficiency, decarbonization, circular economy, natural capital, and effective interactions with nature and natural systems, and so on.

And then I'll come on to how that's been driven a little bit by some of our innovations as well. But I think what you can see is that the strength of our services that we've built up over decades as a recognized sustainability and technical services, supplier of advice to our major clients is now being transformed into higher value work, because we've got those insights from what actually is going to work on the ground, what is going to be pragmatic, what is going to yield impacts and outcomes against an ESG strategic framework. We're very well-

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AECOM (ACM)	Corrected Transcript
ESG Advisory And Biodiversity Leadership Call	14-Jun-2022

positioned to offer that. In fact, I was talking to an ex-colleague, who's now a non-executive director the other day, and he was saying, you see a lot of new ESG experts coming out of the woodwork in recent months.

And he said, now, I'm a bit worried about that. I'd like to get my ESG advice from someone who is a bit more lived-in, the theme and the topics, and actually has some experience of delivering on projects and knows what's going to work. So, I thought that was a very interesting remark from that non-executive director that he's looking for a lived-in advisor to give him some really tangible approaches that he knows will be effective on the ground and will yield the sort of growth opportunities and security against ESG risks that he was concerned with.

So, if I just jump on to the next slide, I will just go through some of the elements, if you like, the key ingredients that are driving this. Now, let me pick out a few. This is quite a comprehensive slide that you can take away and reference later. But I think, clearly, we are seeing a lot more interest from investors in the ESG performance of companies. And so, naturally enough, that is one of the drivers for them to be reaching out to organizations, like us, who know about what those risk factors could be, what those opportunities are to mitigate them, and how to look at that. And that could be through supply chain risk, it could be through decarbonization, there are a bunch of ESG themes that will be different according to where that organization is on their journey that the investor has interest in. And technical term for that would be materiality. What's material to that business or that organization in terms of their ESG risk? It could be water, security. It could be supply chain risk if it is a global enterprise with lots of products coming from different parts of the world.

I think the ESG risk frame allows you to look at what are those strategic hotspots for that organization that they're going to need to be mindful of. And, of course, if they're a port or a coastal industrial facility, resilience and adaptation to a changing climate will be top of mind. Then, that will be the focus that we would bring. I think the other thing that's driving this, we really noticed at AECOM and one of the benefits of me having been one of the architects of AECOM's own ESG strategy, sustainable legacies, is that I've been walking the talk in-house with our executives, with our business leaders, and our regional executives around the business, actually getting our own strategy together.

One of the fascinating drivers there has been how important that is to our people, to our workforce, that they know they're working for an organization that is alive to these issues and that is aware of what the risks are of not getting this right in terms of retention, likelihood to stay on in a role, likelihood to look for new opportunities. So, absolutely critical. And I think we're all well aware of how society's views are changing very rapidly on these issues, as folks become much more aware of societal risks of vulnerable societies, vulnerable communities within societies, and how an ESG approach can actually help address a more equitable approach to, for example, infrastructure delivery are key area of work.

So, what does a more mature ESG program bring to an organization? What would our insights and help developing an ESG strategic program bring to an organization? Said a different way. So, it would help set out what those ESG risks are. Any of you familiar with the World Economic Forum, last two years, you've seen all those environment and social sustainability risks all getting into the top right-hand corner. So, they are all serious and urgent needs to be dealt with.

How do we develop a resilient and strategic opportunity out of that sort of context and that sort of maelstrom of competing issues? So teasing that out, and then coming back to that materiality issue is absolutely vital for this. I think it's competitive advantage as well. If you have a strong ESG strategy in place, you're actually buffered against some of the wins and the drivers that could knock a less resilient company, of course, you have answers to the serious questions, because you've developed your strategy that is resolving your carbon risk or your financial stability is enhanced by, for example, an ESG-linked financial facility.

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