Why are Environmental Social and Governance criteria so Important for Hotels?
The Post-Covid Scenario
The easing of restrictions has led to travel levels at pace again. Also, in the EMEA region, room rates are back to what we saw in pre-pandemic and hoteliers must keep driving rates to compensate for inflation costs.
We have a triple planetary crisis relating to climate, pollution, and nature. It is becoming increasingly crucial for all tourism players to put sustainability and circularity at the business model core.
The United Nations Environment Programme (UNEP) proposed ten policy measures to support sustainable tourism and address the increasing risks of natural disasters, climate change, and pandemics. The measures comprehensively support the findings of the European Commission’s consultation on the “New Industrial Strategy” and its 27 transition pathway topics across the green transition, digital transition, and resilient transition, coupled with its targets and milestones.
But environmental issues are not the only threat to tourism and hospitality. Other risks related to attracting talent, payroll costs, human rights risks, inflation, energy costs, and supply chain disruption are risk areas that hoteliers and operators navigate.
The Need for Context and Regulation
Although hospitality is still in a laggard scenario in the sustainability sphere, industry alliances and international institutions are advancing to set minimum sustainability standards, such as the recent 12 indicators presented by the World Travel & Tourism Council (WTTC).
The Corporate Sustainability Reporting Directive (CSRD) regulation update has eliminated listed SMEs from the Directive scope. Companies must hire a different auditor for sustainability reporting than their financial accounts.
The removal of the exemption for the subsidiaries of large companies to report sustainability data. Also, there is a one-year delay in the disclosure compared to the original proposal of the Commission, with reports to be published in 2025.
The most recent update adds clarification of the disclosure of sustainability targets with additional guidance for the development of mandatory EU standards on climate matters. And finally, the alignment between due diligence-related disclosures and the recent proposal for the EU Corporate Sustainability Due Diligence Directive.
We cannot just rely on a single ESG rating as they fail to capture the totality, complexity, and subjectivity of ESG risks and opportunities that a company faces. ESG investors might have to do some work rather than implementing “ESG-by-numbers”. ESG data points are helpful, but there is simply no algorithm, equation, or excel formula that can replace the need for an actual human being to apply their minds on a case-by-case basis and industry-specific knowledge and context. The application of mind by a skilled person/s on all material issues is a fundamental parcel of fiduciary duty for investment managers.
Brands should lead this transition and become regenerative. Applying regenerative practices to ensure not only a net-zero path but aiming for ‘net-positive’ on specific outcomes–across the hotel or hotel chain social, environmental, and economic impact areas, and continuously improving based on results and learnings. Regeneration and degrowths are associated with inspiration and push industries to innovate. It is an opportunity to create long-term value.
Key Impact Areas (KIAs)
As part of the CSRD Environmental, Social, and Governance Framework, hotels can refer to the ESG materiality to consider when creating a strategy and analyzing the Impact Areas and Key Performance Indicators for each department. This helps operators set the activities and practices and track progress across multiple departments.
Investors are seeking financially material ESG data from companies, banks, regulators, and consumers expect hotel brands’ disclosure, and information on their governance, strategy, risk management, metrics, and targets.
Furthermore, most hotel stakeholders require reliable ESG data for:
- Corporate clients’ RFPs ESG data requests.
- Lease agreements requiring ESG data.
- When refinancing debt with banks and their demand for ESG data disclosures.
- Investors’ disclosure requirements.
- ESG criteria added to management contracts.
- Provides measures for understanding and controlling policy.
There cannot be a person with another role dedicating some hours to sustainability. There must be board-level commitment and executive involvement and at least one level of changemaker and decision-maker to drive change on a full-time basis. At least one director has to be assigned the role of sustainability board champion. As hotel owners, operators and GMs, we need to ensure long-term strategy implementation to create sustainable buildings and cultures that thrive.
Hotels can unlock the value of ESG data to:
- Implementing risk assessments to optimize the governance policies and ensure sustainability performance monitoring and improvement.
- Establish a team to focus on the environmental and social criteria.
- Cost efficiencies
- Better coordination and efficacy
- Technology implementation and data collection
- Innovation and guest engagement
Thus, it is fundamental to gather, monitor, and evaluate hotel operations data. Use technology for a data-driven approach as we need data in real-time, and when possible, use a science-based targets approach.
The idea of integrating sustainability into operations and decision-making was always a clear need under my view, thus, I collaborated on this project with Clever and ABC hospitality. The software will help with data gathering and will enable hoteliers to have a clear picture of the hotel dataset for each ESG materiality and impact area.
Maribel Esparcia Pérez
ESG Sustainability Expert
ABC Sustainable Luxury Hospitality