Loss and Damage: these two words have become synonymous with the stark reality of climate change consequences.

At a governmental level: discussion is on-going on how to set up the fund (Loss and Damage Fund) that should address the financial needs of vulnerable nations faced with severe floods, droughts, or extreme heatwaves (see COP28 [1]). The fact remains that a country's infrastructure and economy are directly affected by such events including the hotel real estate sector.

At a business level: climate-induced damages can lead to significant financial distress for hotel companies due to direct costs (e.g. building repair costs, displacement of workforce) and indirect impacts (e.g. disruption in economic activities) as well as depreciating the real estate value significantly.

Climate risks and their influence on property asset valuations have been under debate for years. Experts[2] point out that hotel properties not incorporating sustainable features, or those with higher exposure to environmental risks are being sold at a lower price than their market value (i.e. Brown discount). The readiness of investors to pay for properties that have sustainable features (i.e. green premiums), on the other hand, remains limited.

Despite growing climate change concerns and with destinations increasingly exposed to greater climate risks, the current hotel pipeline nevertheless shows a sharp increase in the development of hotels in the upscale and luxury market [3] including construction in high risk areas[4]. Due to the nature of their operations and construction requirements with extensive facilities, luxury hotels are considerably more impactful in terms of high resource consumption (i.e. carbon footprint, energy usage and water consumption[5]). Overall, the hotel construction pipeline suggests an industry undeterred by mounting environmental challenges…

That raises three questions (feel free to tackle only one question of your choice, or all of course):

  1. As hotel asset valuations are increasingly linked to sustainability features and environmental risk exposure, do you foresee this trend changing the overall approach to hotel development and, if so, how?
  2. Data suggest that the luxury hotel construction pipeline is unaffected by climate change concerns. What mitigation strategies needs to be adopted by the hospitality sector at this point to live up to the promise of decarbonization?
  3. And more blatantly: Should the industry refrain from developing new hotels in risk areas?

References

[1] UNFCC. (2023). UN Climate Change Conference - United Emirates Nov/Dec 2023. https://unfccc.int/cop28
[2] Lee, I. (2023, Aug. 06). Investor appetite for luxury hotels continues despite environmental challenges. https://www.hospitalityinvestor.com/esg/investor-appetite-luxury-hotels-continues-despite-environmental-challenges
[3] Lodging Econometrics. (2023, Aug 30). Three Chain Scales Hit Record-High Project Counts in the Global Pipeline at Q2. https://lodgingeconometrics.com/three-chain-scales-hit-record-high-project-counts-in-the-global-pipeline-at-q2/
[4] GermanWatch. (2021). Global Climate Risk Index 2021. https://www.germanwatch.org/en/19777
[5] CHSB Index. (2023). Hotel Sustainability Benchmarking Index 2023. Cornell University Library. https://hdl.handle.net/1813/113258

Marloes Knippenberg
Marloes Knippenberg
CEO, Kerten Hospitality

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Glenn Mandziuk
Glenn Mandziuk
CEO, Sustainable Hospitality Alliance
Sven Wiltink
Sven Wiltink
Global Senior Director Sustainability at Radisson Hotel Group
Johanna Wagner
Johanna Wagner
Co-Founder of La Belle EDuC, Founder of Upside Up Hotel Asset and Guest Lecture at ESSEC MSc in Hospitality Management (IMHI)

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Sarah Habsburg-Lothringen
Sarah Habsburg-Lothringen
Responsible Hospitality | Marketing & Training | sarahhabsburg.com
Dan Ruben
Dan Ruben
Director, How to Green Your Hotel
Jonathon Day
Jonathon Day
Associate Professor and Graduate Program Director School of Hospitality and Tourism Management

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Swantje Lehners
Swantje Lehners
Managing Director of Projects and Cooperations at Futouris e.V.
Frauke  Fischer
Frauke Fischer
Founder, Agentur Auf!

Like many other sectors of the economy, the hospitality sector assumes that forecasts and strategies for the future can be derived from a look at past developments. In view of the transgression of planetary boundaries (including climate change and the loss of biodiversity), our world will undergo massive change. So dramatically that we will have to completely rethink. Natural resources, land and the overall social and political framework will change so dramatically that, in case of doubt, only those companies that are truly sustainable will survive. Building new buildings in risk areas? In my opinion, no!

Peter Varga
Peter Varga
Assistant Professor at EHL Hospitality Business School
Elena  Cavagnaro
Elena Cavagnaro
Professor of Sustainability in Hospitality and Tourism at Stenden University of Applied Sciences
Trevor Girard
Trevor Girard
Director of Standards, Hotel Resilient

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Chalana Perera
Chalana Perera
Founder – RETRACE™ Hospitality
Megan Epler Wood
Megan Epler Wood
Principal, EplerWood International
Willy Legrand
Willy Legrand
Professor at IU International University of Applied Sciences Germany