A better way to do business

The global push for action on climate change has been shouted from the rooftops for many years, but the urgency behind it is growing and the implications for the hospitality sector are huge. Since the Paris Climate Agreement of 2015 and the launch of the UN SDG goals, every industry has had to sit up and take note, but real estate – the platform the hotel industry is built on – is at the heart of these initiatives.

The shifting sands of sustainability standards can be hard to navigate, but one central message stands out clearly: sustainability in the design of new properties, and the refurbishment of older properties, to be more energy efficient and create fewer carbon emissions will define much of what the industry has to do in the years ahead. Equally clear is the fact that investors in the hospitality sector will increasingly need to show how sustainability is reflected in their investment portfolios.

“Real estate contributes 40% of the global emissions in the urban environment,” says Rekha Toora, senior vice-president of EMEA capital markets for hospitality at JLL. “Within that, hotels consume the most energy, so they are now very focused on heating, ventilation, air conditioning and many other factors.”

That focus among hotel operators is not only driven by a desire for cost-efficiency or by regulator demands, though both are key factors in an industry recovering from a punishing year thanks to the pandemic. It is driven just as much by consumers and investors.

“People are more aware of their impact on the environment and their communities,” Toora says. “As for the institutional investors that we advise on acquisition and divestment strategies in the hotel sector, they are only looking for projects with sustainable features or a path toward sustainability.”

Global efforts for a growing challenge

There are clear efforts in the industry to embrace sustainable principles, the ramifications of which affect building and refurbishment strategies, operational models and also the design of properties specifically targeting eco-conscious travellers.

In places such as Singapore, architectural firm WOHA has received plaudits for its Oasia Hotel Downtown project. The high-rise in the middle of Singapore’s business district is wrapped in an eye-catching plant wall that couples aesthetic appeal with enhanced air filtration and increased biodiversity.

Meanwhile, Hyatt is among the large chains that have taken a lead on sustainability in its broadest sense, having launched its ‘World of Care’ global environmental, social, governance (ESG) platform.

“We are deeply committed to advancing environmental action,” says Marie Fukudome, director of environmental affairs at Hyatt. “World of Care is designed to address the pressing challenges faced by our colleagues, guests, owners and communities, and to enact meaningful change within our industry.”

The initiative has introduced a new environmental framework and new commitments, focusing on climate change and water conservation, waste and circularity, responsible sourcing and creating thriving destinations.

“By homing in on these impact areas, the new framework is designed to foster collective action across departments, business partners and beyond,” says Fukudome. “Environmental sustainability is a growing priority for our guests, customers and colleagues. Our business customers, for example, have been particularly focused on gathering hotel environmental data, so they can work toward reducing their travel environmental footprint.”

Hyatt has made specific changes at key properties around the world, including the refurbishment of existing assets to improve their sustainability. Grand Hyatt Jakarta, for instance, is the first hotel in Indonesia to install solar panels, and Hyatt Regency Maui Resort and Spa is the first in Hawaii to increase its LEED certification for Existing Buildings to Gold.

Elsewhere, Hyatt Regency Chesapeake Bay, Park Hyatt Tokyo, and Grand Hyatt Singapore have all been recognised by the World Wildlife Fund for their sustainable seafood initiatives. Furthermore, to help owners and developers integrate energy-efficient design features, the group’s Global Technical Standards for new construction and renovation outline heavily on topics such as insulation, lighting, cooling and heating efficiency, ventilation systems, and building materials.

IHG is also making a statement on sustainability, particularly with the Q0 hotel in Amsterdam, which it styles as a visionary lifestyle destination. The hotel, which features everything from a rooftop greenhouse to an underground aquifer to store heated water, is designed to be a living example of how hotels can embrace a sustainable, circular approach as part of their business model.

One way it has introduced circularity is its reuse of water, which represents one of the highest resource costs. Q0 has a grey water system to significantly limit wastewater by using all water from showers and sinks to flush the toilets. The building’s exterior consists of thermal panels that react to the climate outside the hotel and help to control the temperature inside. The list of sustainable measures goes on, proving the sector does not lack technology or design ideas. For any operator, the key is to measure the impact of each design feature for the asset as a whole. What you can measure, you can manage.

“Measurement is fundamental to managing performance – sustainability or otherwise,” says Hyatt’s Fukudome. “Our sustainability efforts are aided by our global environmental management database, Hyatt EcoTrack, which collects and analyses sustainability data from our hotels around the world. This provides properties with easy-to-read dashboards for data analysis as well as best practices for further improvements.”

Pushed by regulators, pulled by consumers

That kind of data analysis will be particularly important going forward, in part to enable hotels to communicate their progress to a public that is increasingly well informed about environmental issues and the potential dangers of climate change. For example, Hyatt can say with confidence that, under its 2020 environmental framework, it has achieved its 25% per square metre greenhouse gas reduction goals early across its three regions’ format for bathroom amenities.

Equally important, however, is the fact that such data can be used to satisfy the needs of investors and regulators who increasingly want to dive into the detail as they push for higher standards. Around the world, there is a push for stricter environmental legislation and new targets for renewable energy use. This is happening everywhere from Europe to the Middle East, where the federal government of the UAE is pushing forward with mandatory green building codes and an improvement in the low level of energy efficiency in existing buildings. The Emirates Green Building Council was established way back in 2006, but its efforts to improve energy efficiency are encapsulated in the new green building code that will, at first, be implemented in government buildings but will no doubt extend to other sectors in due course.

Globally, the climate for investors is changing and new benchmarks are steering them towards a more detailed sustainability assessment across their portfolio. One example is the Global ESG Benchmark for Real Assets (GRESB), to which more than 2,000 investors have already signed up, including many that focus predominantly on the hotel sector. Its 2020 real estate benchmark covers more than 1,200 property companies, real estate investment trusts, funds, and developers with a combined portfolio or more than $5.3trn. GRESB is an assessment protocol that looks specifically at the sustainability performance of real estate portfolios and assets. Institutional investors use its data and analytical tools to identify opportunities and risks associated with sustainability.

In Europe, the EU classification for sustainable investments – known as the EU Taxonomy – provides the world’s first-ever green list for economic activities. Its aim is to provide standardised definitions to help investors to accurately and realistically evaluate the environmental impact of their investments. Though it has a wide scope, the EU Taxonomy details clear due diligence processes for real estate funds.

Then there is the G20’s Task Force on Climate- Related Financial Disclosures (TCFD), created in 2015 by the Basel-based Financial Stability Board (FSB), which seeks to make companies’ climate-related disclosures more consistent and more comparable.

According to a recent report by real estate services and investment company CBRE, the scope and depth of mandatory reporting is very likely to increase to reflect recommendations like those of the TCFD. It also notes that certain G20 nations – most notably the UK – intend to make the TCFD requirements mandatory. In fact, CBRE expects that by 2030, TCFD will be the leading framework for reporting climate change impacts. For Toora, the Sustainable Finance Disclosure Regulation (SFDR) – brought in by the EU in March 2021 – also has major implications, given that it set out new ESG disclosure rules for asset managers, and brings a new set of transparency obligations and periodic reporting requirements for investment management companies.

“There is a big push from regulators to make sure that investors are held accountable for their investments,” she says. “Future-proofing is essential, which means investment in sustainability or a hotel could become a stranded asset. As the majority of real estate is already built, that is not straightforward, so it is easier for new builds.”

“Investors have to consider the hold period,” Toora adds. “The days of investors always flipping assets are over. They have to think about the long-term effects of climate change, extreme weather events, the effects of sea levels rising, which means flood and fire protection, not just energy efficiency and emissions. In a few years, institutional investors will not invest in any development that does not have sustainable features.”

A diverse future

There are many ways in which the industry can respond to regulatory pressure, investor demands and consumer preferences. The future may see hotel owners enforce green leases on tenants, enshrining sustainability in the terms of business. In other instances, the conversion of office properties into hotels could become an increasingly viable option to reduce the cost of tearing down buildings and starting from scratch. Hotels could also play a more significant role in mixed-use developments (MUD) designed with sustainability at the top of the agenda and with all occupants contributing to the performance of a green MUD. Modular construction – which is faster, needs less labour, creates less disruption to local communities, and is easier to adapt to the needs of evolving regulations and the potential of new technologies – could also become more common. The pandemic has provided an opportunity for reflection, a chance to rethink the future of the hotel industry, creating room for new ideas around sustainability.

“Hotels have been very creative and some of the changes they have made during the pandemic are very sticky and will save costs in the future,” says Toora. “They will be more resourceful in their energy use and continue to focus on cost savings, which will have an impact on sustainability.”

It may be hard to predict precisely how hotels will innovate to create a more sustainable industry, but one thing is for certain – hotels will have to be green.

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