April 2022


The EPC executive’s challenge and opportunity: Navigating the sustainability shift in capital projects

According to an industry report published by McKinsey and Co., accelerating the decarbonization of the U.S. economy to achieve net-zero targets by 2050 will require approximately $275 T of cumulative capital spending over the next 30 yr.1

Beck, R., Aspen Technology Inc.

According to an industry report published by McKinsey and Co., accelerating the decarbonization of the U.S. economy to achieve net-zero targets by 2050 will require approximately $275 T of cumulative capital spending over the next 30 yr.1 This reallocation of capital could, according to an analysis by Deloitte2, deliver net economic gains by the late 2040s and add $3 T to the U.S. economy over the next 50 yr. To spur this activity from a financial viewpoint, leading capital funding institutions such as BlackRock, JPMorgan Chase and Barclays have signaled to the industrial community that they will be preferentially funneling their funding sources to those companies that demonstrate commitment to accelerated decarbonization.

Energy and chemical companies are reacting to reposition themselves. The past year has seen a significant shift in the strategy, planning and initiatives among the leading players in the process industries. In a survey the author’s company completed in June 2021, 77% of companies believe that carbon dioxide (CO2) mitigation leadership is perceived to provide a competitive advantage.3 At the same time, 21% of the more than 200 companies surveyed predict a shift in capital spending of more than 20% over the next 5 yr, while another 48% of companies forecast that shift to be at least 5%.

Will the traditional engineering, procurement and construction (EPC) organizations—whose experience and corporate memory are around large energy, chemical and infrastructure projects—effectively pivot to take advantage of the new sustainable economy capital opportunities? Or will it be a new generation of innovative sustainable engineering companies that drive the future? Nearly all EPC organizations are taking up the challenge, and it is up to their leaders and key subject matter experts to successfully navigate the change. It is a tricky balancing act, requiring that the leadership of EPC firms not only execute tactics to pivot in the short term in which areas like energy efficiency, bio feedstocks and carbon capture are top of mind, but also prioritize a long-term strategy where areas like broader electrification, hydrogen economy value chain and advanced recycling become increasingly important.

Insight into EPC sustainability opportunities

The author’s company wanted to learn more about how sustainability initiatives are translating into capital projects, and how EPCs and their clients—the asset owners—view the next 18 mos. In what sustainability areas are projects expected to be concentrated? How are companies organizing to react? What are the challenges? What are the opportunities? To do this, AspenTech and Hydrocarbon Processing conducted a global survey of process industry decision-makers. More than 185 companies responded to the survey. Respondents represented a cross section of the process industries: 10% represented integrated energy companies, 27% upstream and downstream, 17% chemicals and 25% engineering services. The rest were mining, pulp and paper, and power. Responses were global, with 27% of the respondents from North America, 18% from Europe, 28% from Asia, 10% from the Middle East, and the remainder from South America and Africa. Insights were indicative of where EPCs see the most opportunities with their sustainability initiatives. Those initiatives are the focus here.

Pivoting of capital project work toward sustainability has accelerated. EPC projects have pivoted substantially towards sustainability over the past 6 mos. Will they shift even more dramatically over the next 5 yr? Presently, 17% of respondents indicate that more than 40% of their project work is in the sustainability area. Within the next 5 yr, 57% of respondents believe that more than 40% of their work will be in the sustainability area. Work seems evenly split between new plant construction and modification of existing plants.

Similar questions were asked in the survey AspenTech conducted in June 2021 and the discrepancy is astounding. The perception of how much process industry capital project work will be in sustainability in the next 5 yr has roughly tripled! That is a significant perspective shift in less than a year.

Energy efficiency projects lead the pack, but hydrogen is not far behind. What specific initiatives are driving capital spending momentum? According to AspenTech and Hydrocarbon Processing’s survey, energy optimization projects and hydrogen economy projects are cited as driving project awards by 50%. Sixty-one percent of EPCs say that they are offering, or ramping up to offer, energy efficiency project services, with 52% offering hydrogen asset design and EPC services, and 43% planning to offer carbon capture design services. The top six types of projects that survey respondents are seeing are hydrogen, carbon capture and storage and utilization, energy optimization, solar/wind generation assets, materials recycling, and bio feedstocks. Interestingly, bio-feedstocks and biofuels projects are further down the list.

Europe is leading the way in terms of investments in energy efficiency. Carbon taxes and government incentives in Europe are driving refiners and chemical manufacturers to invest in a systematic and broad scale-up in energy efficiency initiative deployments. Depending on the asset and the process, further efficiency improvements of 15%–30% are possible and feasible for many sites. For example, two of Europe’s largest downstream organizations decided to deploy the author’s company’s advanced adaptive process control across their enterprise to meet near-term carbon footprint reduction commitments. This is a much broader and more accelerated scale of deployment of this proven energy efficiency and carbon reduction technology than seen before.

There are still hurdles to leap. With the wide range of sustainability initiatives and directions the industry is taking, EPCs are facing a diverse basket of capital project opportunities. However, therein lies a challenge. How does a company pick the correct areas to focus their capabilities and expertise? The author had the opportunity to speak with one Chief Executive Officer (CEO) of a mid-sized EPC company in North America. He personally is spending a large fraction of his time working on the company’s strategy to grow in the sustainability projects area. He believes his personal focus on this mission is critical for the future direction of the firm.

This reality is one of the key factors at play: sustainability project work is a strategic pivot and requires executive attention. For his company, as a mid-sized contractor with a strong reputation, business is significantly tied to ongoing relationships, dating back to multiple successful projects over the years. However, the challenge is to maintain that trusted relationship with clients and to assemble the right capabilities to be credible and to prove themselves again as the EPC of choice in new sustainability technology areas, such as bio-based feedstocks, carbon capture, hydrogen and new materials. It is a seller’s market for technology experts and experienced practitioners in those areas. The largest EPCs are bent on assembling a critical mass of staff with the right skills, leaving smaller players with the task of building bench strength in an expensive free agent market.

To get the right strategic focus on sustainability projects, just under half of the responding companies have set up a separate organization or division to pursue and perform sustainability projects. The other half are not yet taking that route. The author spoke with a group of key executives at another EPC that has made the decision to set up a separate group for sustainability projects. The group is set up under a separate executive reporting to the CEO. This approach can win in terms of getting the right executive focus and direction. It also provides a more transparent way to measure the progress in building the capabilities and execution success, as well as be successful in mapping directly to clients’ focus on sustainability. Of course, the counter argument is that nearly all future projects will have some sustainability content, and that this distinction in some ways will not make sense in the future.

Closing the skills gap is top of mind. Regardless of what format of business development is chosen, this survey also sought to find out what the biggest barriers to sustainability capital projects execution are, as perceived both by the EPCs and owners. Building a staff of engineers with the right domain expertise was cited as a barrier by 45% of the respondents, the second largest barrier beyond the economics of the projects themselves.

In terms of how to build up the right staff capability in today’s environment, also known as addressing the skills gap, companies are pursuing a range of approaches. Fifty-four percent of companies are increasing investment in in-house sustainability design training. Forty-two percent are incentivizing their staff to take supplemental sustainability design training, 30% plan to hire recent engineering graduates whose coursework has increasingly focused on sustainability aspects, and 34% are seeing the need to invest in software tailored to addressing the new design and economic challenges of sustainability projects.

New partnerships are emerging. Sustainability initiatives are driving new types and levels of partnerships. This is due to a few factors, including managing risks of new technology (e.g., CO2 capture and green hydrogen among multiple participants) and extended value chains. For example, in a recent forum, Eni’s Chief Operating Officer for Energy Evolution provided two examples of new partnership types. One example is CO2  capture, in which companies with old hydrocarbon reservoirs that can store CO2, and have the technical ability to do so, will collaborate with industries—such as steel—that are hard to decarbonize to develop joint solutions. Another example is biofuels, where land owners that produce biomass to supply biorefineries can combine with local employment initiatives in emerging economies such as central Africa. This will address multiple sustainable objectives simultaneously.

These and other types of partnerships will require EPCs to improve how they are using digital technologies. Partnerships require digital collaboration of many aspects of a design and an asset’s data, far beyond what process industry players are accustomed to. Fifty percent of companies say they are pursuing owner-engineer partnerships. Forty-two percent are looking at cross industry partnerships, such as between upstream companies and metals refiners, and 38% of EPCs are looking at consortia or partnerships that link up multiple EPCs with different skill sets.

Improving the economics with advanced digital technologies. The elephant in the room is the economic investment required for sustainability, and reducing what Bill Gates refers to as the “green premium.”4 Seventy-three percent of respondents feel that economics are a significant barrier to momentum in these projects. The EPCs who look at this opportunistically will see that there is a way to strongly differentiate based on going further than “designing to meet a specification.” Instead, the best design teams will embrace the most advanced digital technologies, including hybrid models that incorporate artificial intelligence with rigorous design tools.

Major takeaways for EPC leaders

Future market leaders will be those that incorporate sustainability results into all their capital project bids and execution. There are significant hurdles that largely revolve around developing the proven capability and expertise to conduct sustainability projects and reduce the future risk. However, companies across many industries and geographies are strongly committed to meaningful capital projects across various sustainability dimensions. HP


  1. Krishnan, M., et al., “The Economic transformation: What would change in the net-zero transition,” McKinsey & Co., January 2022.
  2. Deloitte, “The turning point, a new economic climate in the United States,” January 2022, online: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/about-deloitte/us-the-turning-point-a-new-economic-climate-in-the-united-states-january-2022.pdf
  3. AspenTech, “Sustainability, decarbonization and industry initiatives: Survey findings and analysis,” online: www.aspentech.com/en/resources/report/sustainability-decarbonization-and-industry-initiatives-survey-findings-and-analysis
  4. Gates, B., “Here’s a formula that explains where we need to invest in climate innovation,” TIME, January 2021, online: https://time.com/5930098/bill-gates-climate-change/

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