Environmental, Social and Governance (ESG)
Avoid your Asset becoming stranded in ten years from now and find out the critical role of ESG in the hospitality sector’s investment decisions
Since the last few years, Environmental, Social and Governance (ESG) has increasingly become ingrained into investment decision-making upfront because of potential obsolescence risk as European Union taxonomy rolls out. Thus, hospitality investors see ESG as a critical component of their investment decision-making process, not limited to the EU, but worldwide.
ESG 2.0 – Thematic Intelligence
Corporate interest in environmental, social, and governance (ESG) issues began to gain momentum in the years following the 2015 adoption of the Paris Agreement, an international treaty on climate change mitigation, adaptation, and finance. The agreement was signed by 196 nations — including major greenhouse gas (GHG) emitters the US and China — that all committed to keeping global warming well below the agreed limit of 2°C above pre-industrial temperatures. It marked the beginning of ESG 1.0, in which companies began to come under increasing pressure to consider the ethical impact and sustainability of their operations.
ESG 2.0, especially the ‘E’ component, is now shifting from a voluntary regime to a mandatory one, driven by government regulations rather than consumer and shareholder pressure. It is no longer enough to have an ESG strategy focused on reporting and setting targets for some distant future date.
- ESG consideration is now at the heart of the investment decision making process;
- ESG is no longer a nice-to-have, but a must-have in your strategic play-book;
- It is about securing the future value and viability of your asset;
- Banks shift to sustainability-linked loans, demanding concrete sustainability plans;
- Banks will start withholding financing unless ESG is embedded in the project.
1. Purchasing an existing hotel
Of course, you want to know the liabilities of the building from its building structure and components (such as possible toxic asbestos), heat insulations, and others, to its MEP components and the most recent economic data of power consumption and energy conservation methods. Because, what is not there, you will have to spend, otherwise you see your profit rolling out the door. GHS can help, based on its comprehensive sustainability checklist with a detailed building and energy audit that you should conduct as part of your physical due diligence process.
2. Operating an existing hotel
If you operate or own a hotel already, you should consider the following strategies to prevent your hotel from becoming a stranded asset.
Embrace ESG Principles
- Environmental, Social and Governance (ESG) factors are critical. Prioritize sustainability, energy efficiency and responsible practices;
- Implement eco-friendly initiatives such as reducing energy consumption, minimizing waste and using renewable resources.
Stay Informed
- Keep track of regulatory changes. Compliance with environmental regulations is essential;
- Understand market trends and shifts. Be aware of technological advancements that could impact the hotel industry.
Invest in Adaptability
- Future-proof your hotel by investing in flexible infrastructure;
- Consider retro-fitting for energy efficiency, installing smart technologies and designing spaces that can adapt to changing needs.
Diversify Revenue Streams
- Relying solely on room bookings can be risky. Explore additional revenue sources, such as hosting events, offering co-working spaces, or collaborating with local businesses.
Community Engagement
- Foster positive relationships with the local community. Engage in social initiatives and contribute to the well-being of the area;
- A strong community connection can enhance your hotel’s resilience.
Monitor Market Demand
- Regularly assess market demand and adjust your offerings accordingly;
- Be agile in responding to shifts in customer preferences and travel patterns.
Sustainable Design and Operation
- Go for sustainable building materials during construction or renovation;
- Implement energy-efficient HVAC systems, lighting and water-saving fixtures;
- Educate staff about sustainable practices.
Risk Assessment and Mitigation
- Conduct a thorough risk assessment. Identify potential threats to your hotel’s value;
- Develop contingency plans to address risks related to climate change, economic downturns or other external factors.
3. Developing a new sustainable hotel
- The application of sustainable principles is not incompatible with other hotel management considerations such as maintaining brand identity, quality and guest comfort. In fact, it is more likely that implementing this guidance will demonstrably raise quality standards;
- The major hotel chains are on top of their game, also in matters of ESG and Sustainability. Thus, to tie-up early with an international operator gives you and your architect access to treasures of technical hotel development information that will save you lots of money during the life-span of your planned hotel;
- It is imperative that newly designed and built hotels become compliant with ecological and sustainable tourism rules, regulations, guidelines and best industry standards;
- Your planned hotel should ideally comply with the criteria of LEED status (Platinum is desirable, Silver is minimum standard) even if not certified by them, as long as the standards are implemented;
- Therefore, we will look into each and every angle to adapt whatever measure may be applicable;
- You should have a clear Sustainable Strategy – to achieve CO2 neutrality from the planning inception onwards.
There is an endless number of books written about CO2 neutral and carbon free sustainable building construction, insulation, cooling, heat exchangers, water conservations methods and so on. The question here is, if your preferred architect and engineering consultant is on top of the game and if he knows the latest sustainable building design technologies.
We have the checklists of endless possibilities and we will go together with your architect over these checklists, item by item and evaluate if the one or the other technology makes sense for your property or is a waste of your money.
For more information and initiatives, the following literature are helpful for research:
Green Globe | Green Globe Certification – Certified Sustainability
The Green Globe International Standard for Sustainable Tourism has been developed over decades of research and development.
Travel with Purpose
https://esg.hilton.com/#:~:text=Travel%20with%20Purpose%20is%20our,footprint%20in%20half%20by%202030
This is Hilton’s environmental and social impact Strategy program.
Accor: Our Planet 21 sustainable development program
https://group.accor.com/en/commitment/approach/sustainability-strategy
The Planet 21 programme demonstrates the Group’s ambitious goals for 2020, based around four strategic priorities.
Sustainable Travel
https://sustainabletravel.org/about-us/
https://sustainabletravel.org/our-work/un-sustainable-development-goals/
Sustainable architecture is the use of design strategies that reduce the negative environmental impact from a built environment