Are Hotel sustainability practices enough to achieve a nature-positive and resilient Hospitality industry?
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Understanding the complexities of Hospitality brands navigating Sustainability operations, regenerative practices, and regulation compliance.
The risks affecting the hospitality industry are not limited to inflation, war, and geopolitics. Science has proven that climate-related risks and biodiversity loss are a threat. The hospitality industry operates in a volatile, uncertain, complex, and ambiguous environment. With constant unpredictable change being the norm in many industries, it is difficult to predict and prepare for the future.?
This presents challenges for hotel owners and leadership teams. Can a sector that relies on the land, local biodiversity, and social stability to operate, help destinations and communities thrive and be more resilient?? Understanding that we need to rethink current economic operating systems, how can hotels change from a traditional ‘take-make-waste’ model to a systemic redesign?
In a post-pandemic world, society, regulators, guests, and investors are driving change in the economy. But what are the key areas that drive responsible behavior in the hospitality industry?
What risks are threatening hotel assets?
Physical risks
The accommodation industry accounts for 264Mt CO2-eq direct and controllable emissions (so-called scope 1&2), reflecting roughly 10% of emissions throughout the tourism sector, according to One Planet Network data from 2022. Extreme weather events (floods, wildfires, sea level rise, water stress, heat waves, and cyclones) can significantly affect the built environment. Buildings, such as hotels and resorts, must prepare to decarbonize assets and make equitable transitions that preserve nature and ecosystems.
Software and deep technologies can be implemented at the property or portfolio level to measure and manage risks based on IPCC models and scientific data.? Although the challenge is the consistency and reliability of data among technology providers, hotels can prepare standard operating procedures (SOPs) and internal processes to gather data requested by different business stakeholders. As a result, assets, local communities, and their teams will be protected.?
Transitional Risks
Transitional risks include policy changes such as upcoming regulations, reputational impacts, and technological advancements that can be viewed as innovative and present new business opportunities. Those risks and opportunities are the results of societal and economic shifts intended to achieve a low-carbon and nature-based future. Examples of these transitional risk costs can be retrofitting costs and technological implementation. Rigorous sustainability assessments are critical to understanding the hotel's social and environmental impacts. Due diligence is becoming a crucial competence.
European Regulation
The Commission adopted, in April 2021, a proposal for a Corporate Sustainability Reporting Directive (CSRD) which would amend the existing reporting requirements of The Non-Financial Reporting Directive (NFRD). The directive extends the scope to all large companies and all companies listed on regulated markets but leaves out the scope listed as micro-enterprises. As a result, audited information must be tagged digitally and companies must report following mandatory sustainability reporting standards. The draft standards were developed by the European Financial Reporting Advisory Group (EFRAG) . You can read the drafts shared for consultati on here.
It is an opportunity to harmonize the current reporting standards landscape, simplifying reporting for hospitality companies. It will also prevent overlapping standards and the inconsistency of data requirements from stakeholder groups. The disclosures should explain how the reporting hotel/hotel group delivers against its policies and targets and its transition trajectory, including past performance (retrospective information) and forward-looking perspectives. The sustainability-related data includes information about the business model, strategy, and supply chains. The Working Paper (WP) presented the following criteria;
What companies are obligated to disclose information required under the ESRS of the CSRD regulation?
All listed and large companies that exceed 2/3 of the following: Balance sheet total: > EUR 20M, Net revenue: > EUR 40M, and > 250 average number of employees. The directive aims to build on and contribute to existing international sustainability reporting frameworks and initiatives.?
“The reporting frameworks and standards of the Global Reporting Initiative (GRI), the Climate Disclosure Standards Board (CDSB) (now consolidated into the ISSB) the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC) and the UN Guiding Principles Reporting Framework are reflected, as relevant, in the [draft] Standard”. EFRAG?
"Double Materiality" (DM) is a newly introduced concept in this legislation. DM “ is a concept which provides criteria for the determination of whether a sustainability matter has to be included in the undertaking’s sustainability report”.? In this way, the double materiality approach can find the links between company impact materiality areas and business financial materiality areas.
Hospitality and Small and Medium Enterprises (SMEs)
Image Source: EFRAG
SMEs will require time to learn about the CSRD requirements, prioritize CAPEX, and source investment for transition costs. Furthermore, they need to educate the workforce and develop the necessary data collection processes and internal systems. Also, technology implementation will require time. The main challenge for SMEs is that large companies can potentially cancel contracts with them if they cannot report and/or do not have sustainability practices and data. Smaller companies will not reach the main objective of legislation put forward by the Commission by reducing the number of information requests to companies. As part of the value chain of big companies, SMEs will have to present multiple sectoral reports. Reporting standards are challenging since SMEs will have to report to corporations based on large enterprise standards.??
How to start preparing?
It will be mandatory to report sustainability indicators under the Corporate Sustainability Reporting Directive, but hospitality companies have to start preparing now to comply with the upcoming requirements.?
Hotel owners, operators, and management companies can start to gather the information needed for reporting purposes from business partners and stakeholders (such as suppliers, clients, and investee companies) by harnessing cooperation along their supply chains. What’s more, hospitality companies need to start implementing internal processes and structures to ensure the business model complies with the legislation. It will ensure transparency in environmental, social, and governance practices, gather data, put metrics and systems in place, and ensure that the data is well-managed and updated.?
There must be a medium in which hospitality companies can collect and store information in an XHTML format. This is due to the fact that the information will be fed into the European Single Access Point using a digital tag.
How do hotels measure sustainability? How do we bring the right information to the right decision-makers at the right time?
It is vital to follow legislative procedures and to ensure that changes are made through the European Financial Reporting Advisory Group, EU Taxonomy Delegated Acts, and the transposition of the directive in EU member states. Until the final reporting framework is available for large firms and in 2026 for SMEs, it is fundamental to ensure the traceability of supply chains.
In hotel operations, sustainability is now expected. How does the sector go above and beyond?
Guests and consumers expect human rights compliance and nature protection from hotel companies. As such, an old approach to sustainability is unhelpful for business, nature conservation, and community wellbeing.
Example:
As part of a waste reduction strategy, simple plastic reduction plans or metrics may be a "sustainable practice." However, to ensure resilience in hotels and hotel groups, a systemic change approach is necessary. As a result, we should be thinking about how we can incorporate circularity before engaging with suppliers, ensuring our purchases from bio-based, locally-sourced suppliers, and the plastic alternatives we provide in every hotel department support and benefit local communities and the environment. It is not easy, but it is the way to move forward if we want to thrive. Sustainability practices must be implemented both upstream and downstream.
Sustainability certifications
In the scenario of hotel sustainability certification schemes, hoteliers and operators should be aware that most certification schemes fall short of upcoming legal requirements (which is the case for most of them). We have to rethink the intention behind a certification. Consumers expect sustainability from hotels, regulations require further data disclosure, and investors are allocating capital to brands that are compliant and future-proof.
Sustainable Development Goals (SDGs) and the cherry-picking problem.
The Millennium development goals were the SDGs' predecessors. The United Nations Millennium Declaration, which world leaders signed in September 2000 to combat poverty, hunger, disease, illiteracy, environmental degradation, and discrimination against women. In July 2014, the UN General Assembly Open Working Group (OWG) proposed a document containing 17 goals to be put forward for the General Assembly’s approval in September 2015. This document set the ground for the new SDGs and the global development agenda spanning from 2015-2030.
Hotels, hotel operators, and investors need to know how they can make a difference to the 169 SDGs targets. It is not easy for operators to think about how they can have a meaningful impact on all 17 goals. Hoteliers, however, tend to choose the most convenient ones. The next step is to take action after conducting the materiality assessment. Industry stakeholders cannot ignore externalities while choosing other areas to work on that are more convenient and require less investment of time and resources.
How can we ensure that teams take action and that the hotel operates with a strategy that seeks to generate positive long-term value for all stakeholders in a hotel or hotel chain?
Why do we need to decouple ESG from sustainability?
While operational data and disclosure requirements are important, having relevant metrics is crucial to measure progress and real action. Environmental, Social, and Governance criteria (ESGs) are important (ESG analysis and justifications used for any company investment. Positive screens investment opportunities to include these three criteria), they do not have to be interpreted as sustainability. Scrutiny of ESG data is important. Only focusing on ESG disclosure is not enough, hotels need to track sustainability performance.
Hospitality Investment Management?
Capital can be used to solve problems caused by ineffective systems. With less focus on reactive sustainability practices based on reduction of harm, and more proactive action-focused systems thinking to tackle, mitigate and solve environmental and social issues. We can find great examples of social impact investing in residential and commercial real estate businesses. ? Asset management firms can maximize capital allocation to improve hotels in surrounding areas and foster local prosperity. Not only do less harm (DNSH) but also create positive effects in every investment lifecycle.
Investors called for more transparent and harmonized sustainability data in recent years. Advisors, standard entities, technology startups and companies, NGOs, and regulators have fostered collaboration to improve ESG-related data? and clarity around the disclosure requirements and basic definitions.?
In the context of the CSRD regulation, the concept of Double Materiality will lead to enhanced clarity on the link between the company's environmental and social impacts and its financial performance. As regulators in major markets are introducing a rising number of mandatory reporting requirements, combined with existing legislation, these rules have intensified ESG-related litigation risk for reporting entities, but the lack of standardization and reporting frameworks and institutions, as well as the lack of industry-specific clarifications, can be difficult to navigate by the industry. Thus, the focus has to be on how to integrate sustainability into the business model holistically to improve company performance and positive impacts.
Can the use of technology help?
The challenges around data and different outcomes from different software providers in climate physical risks make it difficult for asset managers to make informed decisions. The question remains on how machine learning technology and deep tech can support transparency and enhance decision-making and reporting.
Hotels have a substantial impact on land, nature, and communities. Thus, there is a growth potential to use companies to address global challenges, such as biodiversity loss and growing inequalities, redesign systems and focus on wellbeing. Furthermore, including sustainability and regenerative practices in decision-making is now a must-do. Investors and corporate clients expect information and action. In a shortage of staff scenario, where many professionals have left the industry due to the lack of purpose and labor conditions, it is clear that younger generations will work for brands if there is an alignment of goals and values.
This article was brilliantly written by Maribel Esparcia Pérez Managing Partner at European Sustainable Hospitality Club expert in sustainability, she will guide us with her experience during the Hospitality Marketplace event, in particular during the day dedicated to Operations & Sustainability.
FunnelTV Team