Why the 'S' in ESG should start with the staff

After acquiring a five-star hotel on Sardinia’s Costa Smeralda, Benjamin Habbel, Limestone Capital’s founder & managing partner, was shocked by the staff quarters. “How the staff were housed previously was just incomprehensible,” he says. As Limestone got on with a renovation project to bring the hotel up to a level where it could charge room rates of €1,000 per night, the firm saw an opportunity to recycle key elements. “We took the furniture of this five-star hotel, its lighting fixtures and so on, and actually renovated our employee housing with some of these beautiful pieces.  Basically, last season’s five-star hotel is now the staff quarters.”

For Limestone Capital, as well as an increasingly large tribe of hospitality entrepreneurs, the ‘S’ in ESG starts with looking after your own. Habbel sees “the everyday life of an employee” as a key benchmark in a hotel’s social impact. He encourages his peers to ask “do you pay an employee above average?” noting that making a pledge of this nature has the potential to raise a company’s entire game. “When you put the pressure on yourself as an owner - because of course you can only pay great salaries if the hotel is performing - you have to deliver, so that the people that actually deliver the service, are able to take more home,” he suggests. “So, I always start with the person, with the human, and then we can talk about the rest.”

Supporting suppliers

The idea that ‘charity begins at home’ is familiar to Shamsah Fatima Dhala, global lead tourism, retail and property,  at the International Finance Corporation, the private sector arm of the World Bank Group, which seeks to advance economic development by investing in commercial projects for poverty reduction. She describes how the IFC’s investment in a new Mövenpick-managed hotel in Ghana got granular with the social stuff. “A vegetable vendor who was supplying anything from $1,200 to $5,000 worth of vegetables to this hotel was able to supply many more properties by improving the hygiene standards of the produce,” she notes.

The IFC also backed local artists in this example, “providing them with a local platform to sell their art”. She adds: “We are always trying to push the needle on impact – for us social impact means jobs, it means impact on the local communities, as well as the local SMEs and developing supply chains.”

Sustainability impact

For Chitra Stern, CEO of Martinhal Group, tackling the S in ESG starts with the immediate community, but also requires thinking about broader sustainability themes. The hospitality-led Portugal-focused investor has developed an international school in Lisbon, Edu Hub Lisbon, which employs some long-term thinking in the social stakes. She explains: “Hospitality is great, it brings tourists and travellers. But an international school, once you put it there, it brings a family; and that child goes through the school, and then another family moves there.”

In terms of the group’s hospitality holdings, Stern notes that Martinhal has “great staff retention” and notes that they also align their sustainability strategy around human goals. By way of example, 15 years ago, water desalination facilities were installed at Martinhal Sagres in consideration of the local impact on water supplies. “In the end, how much water is available impacts the community,” she notes.

Thomas Laakso, partner, at CapMan, sees a complex web of people to consider within a hotel’s social strategy, naming “all the different stakeholders”. For Laakso, these include “tenants who rent the hotel from us and operate hotels… the guests, the employees, and their families in the community that they're in. Then of course you have the supplier network, anybody that’s providing anything to the hotel, and the businesses downstream of that as well.”

On the real estate side, the sub-contracting element of this complicated network can also have its pitfalls. “You might have somebody at a higher level that looks good on paper, but they then pass a task on to someone else and you might get questionable practices down the road to save money,” he notes. For this reason, a thorough understanding of supply chains is crucial for an effective social strategy, he warns.

Liberty or legislation?

Habbel promotes a vision of “the good entrepreneur” in this picture who seeks to do the right thing, criticising some of the levers of influence trying to force the investor’s hand. “The load of rules, regulations, and demands from the institutional side of the market is exploding,” he notes. “I think that has probably also very negative consequences.”

However, Stern sees legislation as not just necessary but also helpful for the significant group of investors and operators who simply “don’t know what to do”. She notes: “I'm Singaporean, and I guess I come from a country which is all about regulation, but the truth is somewhere in between. You need good entrepreneurs who do well by doing good, but you also need some regulation and benchmarking to guide people.”