How to address ESG to make progress

Hospitality companies should embrace ESG tools in order to make long-term improvements, rather than using them as a box ticking or marketing exercise, says Klaas Kout, director capital markets, CitizenM. 

“We started our ESG journey in 2019 by hiring an ESG expert,” he says. “From there we created a pretty comprehensive ESG strategy, set clear KPIs and clear actions across the company. We've aligned ourselves to industry standards, certifications and ESG reporting frameworks - not just for show, but really to measure how we do along the way.”

He adds: “Across our current portfolio of 34 operational hotels and eight under development, we have collected the data on energy consumption, water use, and third-party emissions since 2019. Shareholders have been very supportive of this proactive forward-thinking approach - they recognise that future-proofing these hotels in this fast-changing regulatory environment is necessary and not just good practice.” They are not the only stakeholders getting behind the approach, he adds. “What we see more and more is actually our guests driving this change and asking us how we are doing on energy emissions and water usage per room, either directly or through corporate bookkeepers.”

Competitive advantage

Gilles Clavie, CEO of Accorinvest Group, agrees. “A few years ago, we had a competitive advantage in showing that we were a green hotel or had a certain type of certification. That starts to be a standard now – without which you risk being ‘deselected’ by guests.” Clavie adds that when it comes to taking forward co-investment deals, ESG is one of the few areas “on which all parties are in full agreement”.

For Veronica Eckhoff, vice president at Aareal Bank, there is also a deeply pragmatic reason to adopt an ESG strategy. “We like green loans because they mitigate our risk,” she explains. “Green properties have sustainable cash flows, potentially increase more in value than brown buildings, and have better exit strategies.” She adds a corporate dimension: “We were acquired by Advent, Centerbridge Partners and CPP last year and they also have ESG accountability towards their investors. So I think it runs through the entire company, not just through our portfolio, but also to the very top.”

For Caroline Tivéus, SVP, director of sustainable business at Nordic hotel company Pandox, deciding on ESG alignment is “simple”. She adds: “It’s to secure refinancing in the future. And that’s why it's so important to start that transition journey now, to be able to meet the requirements that banks are pushing us towards. Otherwise, you will fall behind and you will have problems in refinancing your portfolio.”

Another financial advantage comes with the use of green bonds, Eckhoff notes, although it’s not for the reasons usually assumed. “We can raise capital by issuing bonds.  We've issued normal bonds and green bonds, and we haven't seen a premium for the green bonds. However, we have seen that the investor pool buying into green bonds is much more diverse than when it's a “normal” bond,” she says.

Investment committees

Kout notes that it’s an issue increasingly important to investment committees. “If we present new acquisitions to our investment committee, we clearly describe the climate risks on the transition risks and physical risks of that asset. And the asset has to be electrified. We call it net zero from an operations perspective, which for new investments, means no gas, only green electricity, and just a generator for backup.

“On the existing portfolio, when we make improvements, we have a monitoring tool called CREM to help track our path to net zero emissions for all our hotels. And that's something we report on to our investment committee and our shareholders.”

While many hotel owners and investors are incentivised by the business case of ESG, Clavie suggests that the lever of regulation still serves a purpose. He explains: “Regulation is necessary because it pushes everyone, and at least sets some reference and line to adhere to. Some people don't need those regulations to move more quickly and be convinced – I think we need that mix. Incentives for banks and perhaps insurers could also be helpful.”

He adds: “On the educational aspect, I’m still convinced, when we look at the younger generation - I'm thinking about my children – that they teach me much more than I can learn and are naturally motivated to move in the right direction. The only issue is that we cannot wait for them to build a better word – we need to get there sooner.”