Environmental, social, and governance (ESG) has rocketed up the priority list in recent years, but what do leisure hospitality stakeholders need to know to plan for sustainable destinations, engage local communities and navigate the uncertainty of climate change?
To plan for long-term success, investors need to not only be aware of what ESG means but how to apply it:
E for Environmental
Environmental, as the name suggests, focuses on a business’s impact on the natural environment and covers areas including climate change mitigation, resource conservation, waste reduction and recycling, and biodiversity protection. “We need to understand that we have an impact on what is happening in the environment,” explains Nikolaos Gkolfinopoulos, head of tourism at business sustainability consultancy ICF.
For a leisure hospitality investor, in practical terms this may look like installing energy-efficient lighting and appliances, implementing water conservation measures, reducing food waste, and sourcing local and organic food. Two key areas that should be part of any investor’s environmental plans are mitigating emissions and introducing climate adaptation initiatives.
S for Social
While measuring a business’s environmental impact may be relatively straightforward, or at least there are a multitude of approaches, points out Gkolfinopoulos, how a business measures its social impact is potentially more complex.
The S in ESG covers how a business interacts with people, including employee rights and wellbeing, customer satisfaction and safety, community engagement and development, and ethical sourcing and supply chain practices.
Leisure hospitality investors should be looking at ensuring fair wages and benefits for employees, training and development programmes, community outreach initiatives, linking the hotel experience to the destination so that destinations are included in tourism income distribution, and providing accessible facilities for guests with disabilities.
“We are not operating in silo – we really need to make sure in the destinations we are operating in that we are leaving something behind, we are not only taking,” says Gkolfinopoulos.
G for Governance
Meanwhile, governance deals with how a business is managed and run, such as board diversity and independence, executive compensation, risk management, and transparency and reporting.
“Policymakers have decided that we don’t only need to be doing something about the environment, social engagement and sustainability, but we also need to monitor and showcase that what we do has an impact,” explains Gkolfinopoulos. “Sooner or later, [ESG reporting] will reach every line of businesses at every level.”
In practice, this encompasses transparent reporting on ESG performance, ensuring ethical business practices, and not only promoting the role of leisure hospitality in ESG but acting on it. As Gkolfinopoulos describes it, “really being transparent in what we do, how we do it, how we measure it, how we fare compared to other industry stakeholders”.
Climate mitigation and adaptation
Leisure hospitality investors need to be considering the Scope 1 and 2, or direct emissions, of their investments, as well as their Scope 3 or ‘indirect’ emissions, i.e. the carbon footprint of the operational supply chain. For example, Gkolfinopoulos explains, the emissions of a flight for a guest to reach your resort would be Scope 1 emissions for the airline, but Scope 3 for the resort.
Reducing the negative environmental impact of your leisure hospitality operations, for example minimising carbon emissions or managing water consumption, is critical to reducing the devastating impact of climate change on people and businesses. However, with more extreme weather events, increasing temperatures and water shortages already being seen across the world, influencing investment decisions and impacting hospitality, leisure hospitality sector investors already need to be looking at adapting to climate change in the destinations in which they operate, and working with local communities.
“We need to engage with the local community and society exactly because of these challenges, and we need to make sure that they are participating in the decision-making process,” says Gkolfinopoulos – if not, tensions may erupt between stakeholders.
“We need to not only educate our staff and C-suite, but we also need to be educating travellers who are coming to our places on how to behave and respect the destinations,” he adds.
“We need to create awareness and sensitisation across our communities... to understand the challenges we are facing and how sustainability must be the norm. It shouldn’t be something that we do to attract the sustainable tourist. And finally, we need to take action and responsibility. No-one escapes that.”
All those quoted in this article appeared on stage at the Resort & Residential (R&R) Hospitality Forum, held in Athens, Greece, between November 18 and 20 2024, in a session called: ESG and Leisure Hospitality: Balancing economic impact with environmental and community considerations.