April 20, 2021
It would be difficult to have missed the buzz around ESG strategies which has been heating up the financial markets worldwide.
No company that answers to shareholders is able to escape this aspect of business management and reporting any longer – but it is also important to recognise that there is no quick fix to ESG reporting. It cannot be simply developed and applied within a few months, and then be ticked off the list to move on to other things.
A hasty and imperfect approach to ESG will end up being detrimental to both the companies concerned, and the planet. And as importantly, will almost certainly come back to bite management, taking up incremental time and resources, within a few years.
For those funds focused on Hotel Real Estate, which is where our expertise at Considerate Group lies, we would like to lay out some opportunities when addressing ESG at both fund and ultimately at operational level.
This newsletter aims to give an overview of the market and includes reports and articles highlighting the direction of travel, as well as examples of what effective ESG leadership looks like.
Some key recent highlights include:
1. Demand from guests and travellers
58% of consumers say they are thinking more about sustainability now than before COVID-19 (source: Financial Times)
70% of global travellers say they would be more likely to book accommodation knowing it was eco-friendly, whether they were looking for a sustainable stay or not. (source: Booking.com)
2. Market and Investment trends
Global ESG assets are on track to exceed US$53tn by 2025, representing more than a third of the US$140.5tn in projected total assets under management, driven by a perfect storm created by the pandemic and the green recovery in the US, the EU and China (source: Bloomberg 2021)
Sustainable funds accounted for almost a third of overall European fund inflows in the second quarter of 2020. Flows into sustainable funds climbed 72% to US$71.1bn in Q220, while AUM reached record levels of over US$1tn (Morningstar, Global Sustainable Fund Flows)
3. ESG accounting and reporting standards moving towards more alignment and integration
Good news for those who lament that efforts to measure ESG have created an alphabet soup. The World Economic Forum’s International Business Council agreed last January to work with the Big Four accounting firms, to create 21 metrics by which to chart progress towards a more stakeholder-driven form of capitalism.
Given the current “fragmented, chaotic and confusing” landscape of standards, which makes it impossible to compare companies’ sustainability profiles, standards for measuring sustainability performance is much needed.
Hotel Certifications are also increasingly being aligned to global reporting frameworks – such as GRESB recognising Green Key.
4. EU Green Taxonomy
The EU Green Taxonomy came in to force last Summer. Designed to be the world’s first classification system for green financial products, it establishes science-based criteria on how companies define what counts as truly sustainable economic activity. Disclosing companies who operate within the criteria receive increased tax benefits and enhance their sustainable reputation.
5. BIDEN Administration’s focus on Climate Policies and building a Green Economy
On top of his US$1.9tn Corona relief package, President Biden is determined to have a Climate Bill passed by Congress – as well as approving a US$1.2bn in funding for the Green Climate Fund, a multilateral institution that provides grants and loans to climate projects in developing countries, partially fulfilling the US’s original US$3bn pledge to the GCF. Climate is not just back on the US agenda but at the forefront of many of the new bills being proposed.
6. Net Zero Asset Managers Initiative
Launched in December 2020, the Net Zero Asset Managers Initiative is a group of international asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner. 73 signatories have so far publicly agreed to the Net Zero Asset Managers Commitment, to help deliver the goals of the Paris Agreement.
Postponed from 2020 due to the pandemic, COP26 is now scheduled to take place in Glasgow in November 2021 under the presidency of the UK. There are five priority areas for discussion at the event this year: 1) adaptation and resilience, 2) nature, 3) transition to renewable energy, 4) accelerating the move to zero-carbon road transport, and underpinning all of these is 5) finance. The objective is for every professional financial decision to take climate change into account. The right framework for reporting, risk management and returns will embed these considerations and help finance a whole economy transition. To achieve net zero, every company, bank, insurer and investor will need to adjust their business models for a low carbon world.