Why sustainability and profitable investment are not mutually exclusive

The tension between costs and profitability when it comes to ESG is no longer relevant to the modern investment field and investors should not see profitability and sustainability as mutually exclusive according to Kasada Capital Management CEO and managing partner Oliver Granet.

Kasada has invested in 18 locations across eight countries in Africa and while Granet admits that the company faces a number of specific challenges in the continent, he feels that as an investor it is well placed to bring a common approach and outlook to its schemes.

“In Africa there are 54 countries with a lot of differences. But as an investor we speak the same language everywhere. Our ambition is to bring the same best practice to each country and to bring innovation from Africa back to Europe,” he says of the investor’s approach.

“There is radical change happening. For many years, it was put forward as profitability versus sustainability but as an investor this is not a question any longer,” he says.

“We have to go for green buildings. This is totally incorporated in to our investment process, which means that you have to find a solution. And if you look at the total long term costs then you realise that profitability and sustainability can go together.”

He believes that instead of ESG meaning a cost impact, greater regulation, or some less positive customer experiences through implementation of more sustainable materials, the hospitality industry is now at the point where it can anticipate what needs to be done and make sustainability changes attractive for the guest as well.

One thing to consider when working across multiple jurisdictions is that there is now one-size-fits-all approach to ESG.

"You cannot apply a standard from the US or from Asia to Rome. You need to design tools for Europe and for the European cities, for resort, for beach resort, for ski resort, for each circumstance," said Lorenzo Felici, managing director global hospitality at Artelia.

An issue operators cannot ignore

Pandox SVP Director of Sustainability Caroline Tiveus agrees and says that while increased costs to refurbish existing stock will inevitably require further investment, this is no longer an issue that operators can ignore.

“It will cost a lot of capex to really push ESG,” she admits. “There are costs in a lot of the technical installations, and the materials. But you can start to see it [the onus for change] in the capital markets where we are getting questions from the banks, where they are pushing ESG indirectly through science-based targets. Certifications such as BREEAM very good and LEED Gold are becoming requirements,” she says.

However, Tiveus stresses that many of the changes are about the operational side and about creating alignment between the management operator, landlords and the investors. Pandox owns and leases across 158 sites, but in the vast majority of cases it is working with the landlord.

“For example, to comply with modern regulations we may need to increase the energy efficiency of our tenants by 25%,” she says. “Where we have direct control it is easiest, even if the targets are more demanding. For the property management side, it can be quite challenging. It’s not that easy to get hold of data and the quality of that data is quite different. One thing you need to recognise is that you need skilled people to work with the data.”She also urges landlords to look at their brand guidelines and reconsider whether they are still relevant and also whether they are impairing their ESG efforts. As an example, she points to bathrooms and the guidelines that often dictate how they are fitted out when they are revamped. However, these may not reflect sustainability best practice.

“We need to sit down with the landlord to discuss these types of things. We need alignment and movement in the same direction,” she stresses.

Supply chain focus

The supply chain is another vital element and Mindclick CEO JoAnna Abras says that hotels need to move towards real estate design that reflects environmental and social responsibility.

The company has been working with Marriott on improving its supply chain, including end of life, for over 10 years and there are around 200 companies in the programme aimed at introducing changes.

“It’s important to keep costs in all of this. One of the issues with Scope 3 has been that there is a push for a very expensive model for lifecycle assessment. It can cost $50,000-$100,000 per product to do a lifecycle assessment but that has a five-year shelf life, which means there is no onus to check annually to improve,” she warns.

Because of the cost and complexity, she says that the company has chosen to approach to improvements in ESG and sustainability by focusing on the manufacturing part of the supply chain and from an embedded carbon standpoint.

“This is easier to measure and you can do things about it,” she says.

WATG Managing Director Alejandra de Cordoba Estepa also stresses that there is a good opportunity for the industry to renovate and reposition older real estate in Europe, with much of the stock ageing.

Citing renovation projects for properties in Greece which her practice has been working with over the last five years, she says that at two of the privately-owned hotels energy consumption reductions of 17% and 28% respectively have been achieved.“Revenues have also doubled after the hotels were enhanced, so there is an improvement in both the reduction of costs and in greater revenues,” she says.

Community also key

Kasada Capital Management’s Oliver Granet is also keen to stress that community enhancement and management needs to be part of any refurbishment strategy of hotels.

“Based on our experience in Africa, often we underestimate the impact on people,” he says. “Social and governance are key elements, including how we promote local talents. Our strategy is to focus on working with local authorities, on education, and to find partnerships. And this is where we can take some initiatives, such as a survey we are conducting about gender based violence and harassment, funded by the World Bank.”

He also points out that operators should remember that not every change has to be about expensive technology, but can be something simple such as changing the paint on the roof to be reflective to the sun.

“You can put in place the best BMS system but if you leave the door open it doesn’t work,” he says.

All those quoted in the article appeared on stage at the International Hospitality Investment Forum (IHIF) held in Berlin between May 15 and 17, in a session called - Adapting the Supply: Refurbishing Hospitality Properties for ESG Compliance