The landscape of corporate accountability is undergoing a shift - traditionally, financial reporting has been the backbone of transparency, however rules are changing and across sectors, sustainability reporting is now set to become mandatory in the same way as financial reporting. And the hospitality sector has a chance to shape upcoming regulations.
Speaking at the Energy & Environment’s Alliance’s (EEA) Sustainability Council roundtable, EEA founder & CEO Ufi Ibrahim noted that the change in disclosure requirements is being driven on a global scale by IOSCO, an organisation which represents 130 Securities Commissions around the world, adding that the new S1 and S2 sustainability standards set out by the IFRS and ISSB are already mandated in over 20 countries, with 64 more – including the UK – poised to follow suit having already set deadlines as to when requirements will be mandated into law.
“It’s essentially becoming a national requirement by law across the world to report on sustainability. The IFRS has now been adopted in Brazil, Singapore, Australia, Hong Kong, China and it’s spreading to other countries – it’s going to become the global language to disclose your sustainability performance.”
A Call to Shape the Future
And with sustainability reporting quickly moving from voluntary to required, the hotel and hospitality industries have been given an opportunity to help mold these standards.
“The goal over the next two years is to start mandating sector-specific reporting into national law and so the regulator has allowed two years of industry consultation around the world to find out what exactly investors in the industry want, what information is financially material to them in terms of sustainability and what information is going to really help them assess the risks – whether climate, physical risks, transition risks or sustainability risks,” Ibrahim says.
And with industry investors seeking verifiable audit grade reporting when it comes to sustainability in order to be able to make decisions on capital allocation in the same way they would do with financial reports, the input of all hotel stakeholders is crucial.
Roundtable attendee proposals
And attendees at the roundtable had a lot of suggestions.
Andrew Harrington, co-founder & managing partner at AHV Associates proposed a potential evolution for sustainability disclosures to mimic financial credit ratings, explaining that just as credit agencies like S&P or Moody's evaluate creditworthiness, a sustainability rating could simplify and standardize risk assessment.
“Going back to basics, the major determinant of value is the volatility/riskiness of cash flows and this topic is very important in terms of input into the assessment of riskiness of cash flows. These agencies have credit ratings where they assess the whole thing in the round and get a qualitative view which is translated into their ratings. So maybe there could be a framework in which there’s a credit rating type assessment which encapsulates all the key inputs into the assessment of riskiness and cash flows from an ESG perspective,” he says.
Michael Grove, CEO of HotStats notes work is already being done by the hospitality intelligence platform - which provides detailed financial performance data and benchmarking for hotels - to collect relevant data from hotel companies across the world.
“We work with hotel companies all around the world and are already looking to reach out to hoteliers and collect data from them, their partners and their providers on energy, waste and water. And if there’s a entity that they’re comfortable supplying their financial metrics, then supplying their sustainability metrics will be the obvious next step,” he says.
Benchmarking should lean heavily on quantitative assessments, says Thomas Page, global head of the Hotels & Leisure Group at CMS. “Quantitative assessments need to feed into benchmarking," he states, explaining that numerical data offers companies a way to measure their own sustainability achievements against peers, which would allow businesses to identify where gains can be made and which areas require improvement.
Paul MacSherry, international project manager at Kaldewei adds that while operational metrics such as energy use are important to measure, attention also needs to be paid to embodied carbon, noting that the “smart money” in the industry is becoming increasingly interested in embodied carbon when considering the value of an asset.
Ibrahim notes that some governments are beginning to set legislation on embodied carbon.
“The French government has now set legislation on embodied carbon withing the new building directive – and many other governments are now building it into their building directives – but it only relates to retrofitting or refurbishments. We’re not yet accounting for carbon that’s already embodied within existing buildings,” she says.
Another area which is often overshadowed is demand-side considerations, says Theodor Kubak, managing partner at Arbireo Hospitality Invest.
“We’ve talked a lot about supply-side but what is the demand side wanting to report on? What do they need in terms of this conversation, which is important especially when you consider that 75 per cent of emissions come from travel? We really need to look at what they’re asking for as well and perhaps combine this data.”
Finally, the practical implementation of these requirements may hinge on integrating financial and ESG data, says Beyond Apartment & Aparthotels founder James Fry as he spotlights his company’s use of the Omnevue platform. By linking financial data with sustainability metrics, companies can provide audit-grade sustainability data, aligning with the rigour expected of financial reporting.
Ibrahim concurs, noting that such an approach offers the assurance of audited and verified accounts.
Contributing to a new era
As sustainability reporting moves towards becoming the global standard, hotel and hospitality companies have an opportunity – and an obligation – to shape the disclosures to which they have to submit. In May next year, a call to evidence will be sent out to industry stakeholders across the world with a view to have written responses back within 60 to 90 days.
Ibrahim adds: “All that evidence from across the globe will then be gathered and we will be pulling together that analysis, creating recommendations and presenting that back officially to the regulators for their consideration and adoption.
She adds that the regulator will then revise the sector-specific standards before they get mandated into law, stressing, “we have a very unique opportunity to shape regulation, and then for regulation to set global standards and global benchmarks for our industry.”