The Audacity of Green Hope

December 8, 2020

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Xenia zu Hohenlohe

With the United States’ incoming Biden administration making recent political appointments in the both the financial sector — Janet Yellen as U.S. treasury secretary, with strong environmental, social and corporate governance (ESG) credentials, and John Kerry as environmental czar and envoy ahead of Cop26 next year — the new government confirms its focus on combating climate change.

Biden also has confirmed he will re-join the Paris Climate Agreement as soon as he starts his tenure, meaning that the combination of all of the above will bring along a series of changes for businesses, including those in the hospitality sector.

According to the MoralMoney Newsletter by the Financial Times: “Mr. Kerry’s new national security role will put the climate at the pinnacle of White House influence. And Mr. Kerry has recently become more engaged in green issues by arranging discussions with climate-conscious Republicans as part of his World War Zero environmental advocacy group.” Concerning Yellen’s selection: “She has done research on environmental policy issues and has repeatedly called for a carbon tax in the U.S. as part of a bipartisan coalition with moderate Democrats and Republicans.”

Financial markets have also proven over the past months that ESG investment is increasingly a solid proposition for investors. Asset management groups with real estate investments can therefore no longer afford not to take this seriously. Even Blackstone announced the appointment of an ESG officer for its real estate arm only a couple of weeks ago.

Credit Suisse recently launched a report focusing on ESG in three U.K. and European hotel groups, for which we, the Considerate Group, were interviewed a few weeks ago to help provide some insight. The broader message: Financial markets are finding ways to consider sustainability alongside purely financial metrics and increasingly will hold companies and management to account for ESG as part of a more holistic approach to investment.

We should all want to be at the forefront of this wave.

Some of the direct messages in the Credit Suisse report:

  • Credit Suisse expects sustainability to become an increasingly important differentiator for hotel groups, which is customer-led, with 75% of frequent travelers interested in hotel sustainability. And some hotel groups, such as Hilton, for example, are now even establishing science-based emission reduction targets for 2030, which the rest of the market will have to follow.
  • An asset-heavy business model offers better control over a group’s ESG strategy: The risk for asset-light operators is the potential difficulty in persuading asset owners to invest in sustainability.
  • Credit Suisse would encourage the inclusion of sustainability criteria in executive compensation to hold management’s feet to the fire and demonstrate a commitment to achieving carbon reduction targets.

The carbon intensity per room data highlights three factors:

  • Mainstream hotels are broadly more emissions-friendly than luxury hotels (3-star hotels operate four to five times more efficiently in terms of emissions than 4- and 5-start brands.
  • At the luxury hotel level, there is a factor of six between the most and the least efficient upscale hotels (even in this limited sample).
  • Sustainable upscale hotels can perform as well or better than mainstream brands

So when politics, business and consumer demands are all pulling into the same direction, in this case is towards a greener business model and sustainable customer offerings, it’s time to integrate ESG into your business strategy.

And suddenly the audacity for a green hope turning to a green wave is no longer such a far-off reality.