Sustainability in hospitality: best practice

Despite the post-COVID-19 economic challenges the hospitality industry is facing, their key stakeholders – particularly their clients – are asking organisations to take concrete steps towards sustainability. Those who do not comply are missing out on, key clients, hotel management agreement (HMA) opportunities and more desirable financing. Additionally, ESG legislation is looming.

How can the industry react to these increasing needs, costs of complacency and imminent legislation?

An evolving context

Hospitality has been one of the industries most impacted by the pandemic, and the current economic background – characterised by inflation and high-interest rates – is also not particularly favourable for this sector. However, the increasing tourism coming from overseas – particularly from Asia, following the open-up post-COVID-19 – represents a positive trend for these businesses. As organisations are transitioning their people back to the office, business travel has also started increasing. This, combined with the increasing trend of ‘bleisure’, where business travellers extend business trips to add leisure days, renders these clients more valuable than ever.

While the world is still recovering from the pandemic, it is also transitioning to a new reality, characterised by new priorities and needs. As for many other industries, the hospitality sector needs to face numerous sustainability-related challenges that are increasingly impacting the business in which they operate.

Pressure to take action in the sustainability space comes from all fronts – from regulators, internal stakeholders, capital providers, asset owners, suppliers, competitors, and most importantly, customers. Leisure travellers make more conscious decisions on the type of property they are staying in and the services offered, easily switching to more sustainable brands. Businesses are also paying more attention to their suppliers’ sustainability credentials, looking for third parties that can help them achieve their own sustainability goals. Pressure is also increasing in the market, with players already setting up sustainability policies and best practices to overcome some of the most common challenges.

What are the key sustainability priorities?

From a decarbonisation perspective, clients will be looking to engage with hospitality players that have clear plans to transition to Net Zero, with concrete targets set and active progress tracking taking place. As the regulatory disclosure requirements are becoming more evident in this area, an increasing number of market players are developing and disclosing their emissions and transition plans, making those hospitality businesses that are behind in the process perceived as unsustainable and less competitive.

This will be particularly important for businesses, as their indirect emissions (Scope 3 emissions) are highly dependent on the decarbonisation performance of their third parties. A growing number of organisations are refining their procurement policies to ensure information about their suppliers’ emissions is accurately captured and contractual decisions are taken on this basis. For this reason, the hospitality sector needs to have a clear overview of their greenhouse gas emissions, ensuring ambitious yet realistic targets are in place to reduce emissions, and a transition plan has been defined to achieve such targets.

Leisure travellers will also be keen on understanding the environmental strategy of their hospitality brands, not only limited to their decarbonisation objectives but also covering water and waste management (including food waste), as well as the adaptation of a circular economy. They will also be interested in the services provided by the facility, including the availability of electric vehicle charging points, which happens to be a growing trend in the sector.

From a social perspective, business clients will want to deal with partners that share common values, particularly when it comes to workforce diversity, fair pay, human trafficking, modern slavery, and impact on local communities. Recognising that some of these aspects are more easily manageable and influenceable than others, hospitality businesses require to understand where they can make a difference and what should be their key priorities based on their operations and circumstances. Workforce diversity tends to be a critical challenge for this sector, which is often characterised by limited employees’ career development pathways, linked with low retention rates. While there is a general need to upskill hospitality professionals, this should be implemented in a way that ensures diversity at all seniority levels.

While these topics are particularly important for business clients – which are including social-specific references in their procurement policies – they are also valued by leisure clients, who are increasingly making travel choices based on these aspects.

Making this possible

While many hospitality organisations recognise the importance and need to build a sustainable business, the effects of COVID-19, followed by a not-so-favourable economic background, are making it difficult for this industry to afford the required upfront financial resources to implement these changes.

It is therefore important for firms to take a step back and look at the bigger picture, understanding what the areas are where each organisation can make a concrete difference and building a sustainability strategy that prioritises these aspects.

In addition, while funding is a common issue across many sectors, it is also worth considering that a third of the total investments currently made already focus on ESG aspects, and this portion continues to increase over time. Sooner rather than later, companies that are not incorporating sustainability into their core operations will be significantly penalised.

The importance of reporting

In addition to making concrete steps towards a more sustainable business, organisations also need to consider how their progress can be effectively reported externally.

While the reporting structure and design can vary, it is fundamental that it includes clear and transparent information, easily readable and accessible by both businesses and private clients. This requires hospitality organisations to use plain terminologies, and to provide detailed explanations of not only their sustainable objectives but also their performance and the related metrics applied.

Having transparent disclosures will also minimise the risk of ‘greenwashing’ – when it comes to environmental challenges – and ‘bluewashing’ – when describing social-related performance – keeping their brand reputation intact.

Conclusion

In this evolving environment, where integrating sustainability into the business is important, but equally challenging, we can support businesses in the hospitality industry with setting a clear sustainability strategy, establish key priorities and facilitate their sustainability-related disclosures. Please get in touch with Malcolm Kerr.

Authors: Vedika Jhunjhnuwala, Consultant, Horwath HTL UK and Simona Villa, Consulting Manager, Crowe UK Risk Consulting