Starting a Green Revolution

In 2020 the Sustainability Hotel Alliance found the hospitality sector to be responsible for 1% of global carbon emissions, of which hotels account for around 21%.

Three years later and the Deepki ESG Index, which represents the first publicly available European benchmark measuring real estate's environmental performance using real data, reveals that in the past year hotels are the only sector to see an increase in energy consumption, largely due to the sector's recovery following the pandemic.

This makes hotels - along with healthcare - the highest emitter of carbon, in Europe with emissions of 39 kgCOeq/m² for the last year.

But unlike healthcare - and the housing, office and retail sectors - hotels are the only typology to see an increase in energy consumption, marking it out for all the wrong reasons.

This is not only bad news for the environment; it makes the sector vulnerable to commercial and regulatory risk.

Carbon Footprint

A single night's stay in a hotel creates an average 40kg of CO2. This figure increases significantly for luxury hotels and it also rises depending on where you are in the world. Turkish hotels, for example, produce far more carbon than those in the UK.

And it is not just in terms of carbon emissions that hotels are having a negative impact. The Sustainable Hospitality Alliance reports that water usage is on average 1,500 litres per hotel room per day and, in some locations, tourism uses over eight times more water per person on average than the local population.

Meanwhile, the same research shows that 18% of food bought by the hospitality and food service industries is wasted each year.

Research from the Sustainable Hospitality Alliance finds that the hotel industry must reduce its carbon emissions by 66% per room by 2030, and by 90% per cent per room by 2050 to "ensure that the growth forecast for the industry does not lead to a corresponding increase in carbon emissions".

And the research claims that the industry will need to go even further to help limit warming to 1.5oC and avoid the very worst impacts of climate change.

Commercial Imperative

Limiting the impact of climate change is not the only motivation that should drive the sector to make improvements to their sustainability scores; hotels are increasingly commercially vulnerable if they fail to improve ESG performance.

Guests are more interested than ever in the environmental impact of the services they choose, and that includes hotels. By providing information on the value of a hotel's carbon and water footprint, customers can make more informed decisions about their hotel choices. According to Booking.com, 70% of travellers prefer to choose a property that uses sustainable hospitality practices . Hotels that fail to measure up will likely lose out to those that do.

The cost of 'greening' a hotel is undoubtedly an issue - especially for an industry still rebuilding from the ravages of the Covid pandemic. Latest statistics show that business leaders in the UK's eating and drinking out sector expected only 85% of hotels to re-open after the lockdown measures due to the coronavirus, representing a significant dent in the industry.

However, failure to improve an operation's sustainability may yet be a false economy. According to Sustainable Hospitality Alliance research, hotels with a strong ESG agenda can lower their operating costs by up to 30%. These cost savings come from a range of sources, including smaller utility bills, lower waste disposal costs, and a boost in employee productivity.

Further World Bank research shows that for every US$1 invested in improving infrastructure's climate resilience - regardless of sector - can be saved in the cost of climate hazards.

Regulatory Risk

Hotels are incredibly important to the global economy - the sector is predicted to contribute US$15.5 trillion dollars in 2033 - and many countries are dependent on travel and tourism for their economic survival.

For example, the sector contributed £237.1 billion to the UK economy in 2022 which, while significantly lower than the £258.5 billion delivered in 2019 - which is almost entirely the result of the damage done to the sector during the Covid pandemic - demonstrates the importance of hotels to supporting UK GDP growth.

Yet if global policymakers are to reach their net zero targets by 2050, hotels may come under severe scrutiny from policymakers in terms of their negative emissions output and the sector faces a significant risk of increased regulation and reporting requirements if it does not take the initiative on improving sustainability across the sector.

Meanwhile investors are also looking for ways to ensure they meet global sustainability targets and will be expecting the leisure industry to demonstrate an improvement in its credentials.

There is already a growing raft or environmental reporting guidelines. For example, the UK and New Zealand have mandated carbon reporting under the Taskforce for Climate-related Financial Disclosures (TCFD), and we can only assume this will become more widespread. Meanwhile new reporting standards are expected including the Taskforce on Nature-related Financial Disclosures (TNFD).

Innovation in sustainability metrics undoubtedly is making it easier for businesses to calculate their carbon footprint, which will assist hotels in meeting this growing disclosure obligation.

But while the metrics become more available, the number of reporting requirements also increase, and these remain far from consistent or harmonised.

ESG rules and regulations vary across different markets, with some countries more advanced than others in terms of introducing legislation to mitigate climate change, such as mandating that new construction and remodels meet strict regulatory requirements, while others impose scant sustainability expectations.

This makes it especially challenging for global hotel chains to implement joined-up ESG policies across their operations.

An increasingly unified approach from the Global Reporting Initiative, International Financial Reporting Standards and the TCFD and TNFD may go someway to alleviating this reporting burden in the future, but for now hotels will be required to juggle compliance across jurisdictions.

Positive Action

Expecting the hotel sector to fund a green transition while simultaneously remaining profitable in a challenging market is a big ask, but there is evidence of progressive measures - already being taken.

There are ample opportunities for hotels to access green finance in today's markets. Financial institutions appreciate the importance of sustainability and offer financing options specifically designed to support green initiatives. Investors and hotel developers focusing on sustainability can access attractive financing terms, including lower interest rates, extended loan tenures, or specialist funding options like green bonds.

These finance opportunities make it far easier for hotels to implement numerous sustainability initiatives that are improving the industry's green credentials.

More hotels are setting up centralised departments that combine resources from across the organisation to initiate sustainability programmes.

Hotels are increasingly supported by collective action that supports businesses in reducing energy usage, for example adopting energy-efficient technologies, such as LED lighting, smart thermostats, and efficient HVAC systems, can significantly lower bills.

There is evidence that hotels are adapting to climate change risk by assessing their exposure to extreme weather events and putting in place mitigation measures and taking out relevant insurance.

Meanwhile, carrying out energy audits can identify areas for improvement and optimize energy usage, resulting in cost savings and reduced financial risk.

Water conservation is also an important focus for the industry - and that goes beyond asking guests to reuse towels. Hotels are introducing water recycling systems, which reduces expenses and safeguards against potential disruptions in supply.

Reducing waste is another important area of concern with composting, recycling and responsible sourcing all gaining traction.

A Sustainable Future

It is clear that the hotel sector needs to act quickly if it is to reverse an upward trend in energy consumption and to align with the world's transition to net zero carbon emissions by 2050.

But while there are considerable challenges to overcome in the green transition, there are also numerous opportunities.

Hotels stand to gain reputationally, financially and environmentally by reducing their carbon footprint and moving to more sustainable ways of doing business.

Organisations that demonstrate a proactive approach on the environment will secure brand loyalty, competitive advantage, and are more likely to be looked upon favourably by investors.

There is a huge opportunity for hotels to be seen as industry leaders where they are demonstrable drivers of the sustainability movement rather than being led by it. However, at present the sector remains something of an ESG laggard.

It is time for positive change, and whether that comes from a greater use of renewable energy, a deeper appreciation of the circular economy, and moving to more sustainable business practices, there are ample chances for hotels to ensure they improve their ESG scores without taking a hit on the bottom line. The critical factor is that they take that action sooner rather than later.

Deepki helps commercial real estate investors, owners and managers to gain a comprehensive overview of their portfolio's ESG performance, while maximizing the value of their assets. Users can establish investment plans to reach net zero, assess results and report to key stakeholders.

The SaaS platform enables clients to collect ESG data, get a comprehensive overview of their portfolio's ESG performance, establish investment plans to reach net zero, and assess results. It also allows users to report to key stakeholders. The platform is supported by carbon and ESG experts who partner with clients across data collection and analysis, through to ESG strategy definition and implementation.

Reprinted from the Hotel Business Review with permission from http://www.hotelexecutive.com/.