Why tourism can't yet tap into climate and green bonds for financing

Sourcing financing is always on my needs list for tourism development projects. So when a new potential source is reported, it catches my attention. This is exactly what happened last week with the following headline on Greenbiz.com: "Why Starbucks issued its first ‘sustainability’ bond." 

The story followed up on a news announcement in May from Starbucks that it had just issued its first ever U.S. Corporate Sustainability Bond. The bond is an offering of $500 million to boost its coffee supply chain management in its network of eight farmer support centers around the world (Rwanda, Tanzania, Colombia, China, Costa Rica, Indonesia, Guatemala and Ethiopia). Proceeds from the offering support loans to farmers to assist them in meeting the sustainability standards Coffee and Farmer Equity (C.A.F.E.) Practices program.  

What about for tourism?

Nothing similar seems to exist yet for tourism-related projects. In July, the Climate Bonds Initiative (CBI) and HSBC released the annual Bonds and Climate Change report and in March, Credit Suisse/CBI distributed a whitepaper titled: "Levering ecosystems: A business-focused perspective on how debt supports investments in ecosystem services." Aside from an emphasis on bond funding for railways in the HSBC report and a passing reference to “cultural services,” which include tourism and recreation, in the Credit Suisse report, tourism is not yet an industry that seems to be benefiting directly from the growing trend in issuing climate or green bonds.

FREE DAILY NEWSLETTER

Like this story? Subscribe to IHIF!

The hospitality industry turns to IHIF International Hotel Investment News as the must-read source for investment and development coverage worldwide. Sign up today to get inside the deal with the latest transactions, openings, financing, and more delivered to your inbox and read on the go.

According to CBI, “climate bonds” are used to finance, or re-finance, projects needed to address climate. They range from wind farms and solar and hydropower plants, to rail transport and building sea walls in cities threatened by rising sea levels. The “climate-aligned” bond market currently totals $694 billion with bonds specifically labelled as green or climate bonds by their issuers accounting for $187 billion of that total, up from 11 percent in 2015. As the following chart from the annual report shows, two thirds of the bonds are for low carbon transport projects.

Green bonds proceeds are generally used for environmental or climate change projects, which could include financing sustainable coffee farming, such as what Starbucks is doing, climate change resilience projects, such as building sea walls to protect resorts, or even the development of parks. They could also be used to help achieve Leadership in Energy and Environmental Design (LEED) certification for buildings.

As the following chart from the CBI HSBC report shows, green bonds are issued for a wide range of sectors, several of which, such as buildings, energy and water, could benefit tourism and help ensure the more sustainable development of the industry.

The CBI HSBC report shows continual and substantial growth in the issuance of green bonds with an estimated $100 billion to be issued by the end of 2016.

Why this is important for the travel and tourism industry

The global bond market totals $100 trillion, so the green bond market is still a small portion of the total market. However, that is expected to change quickly. In December 2015, asset owners, investment managers and individual funds managing a combined US$11.2 trillion of assets signed the “Paris Green Bonds Statement," committed to growing the market. They stated that as investors and fiduciaries, [they] have a responsibility to address threats to the future performance of their investments from climate change, as well as a responsibility to secure their clients’ savings through sustainable and responsible investments. They emphasized that they believe green bonds can be part of their strategy to accomplish both of these aims. The group is looking for opportunities to invest.

Tourism demand

Tourists are increasingly demanding more attention on sustainability—cultural, social, environmental and economic—from destinations and attractions. The quality of tourist experiences is often in direct proportion to the degree of attention to sustainability, particularly cultural authenticity, protection of natural resource, contribution to local community economies and mitigation of carbon emissions. So tourists want to see the results of what Green Bonds finance.

The United Nations and UN World Tourism Organization have declared 2017 the International Year of Sustainable Tourism following the declaration of the universal 2030 Agenda for Sustainable Development and Sustainable Development Goals (SDGs). The International Year aims to support a change in policies, business practices and consumer behavior towards a more sustainable tourism sector than can contribute to the SDGs.

The #IY2017 will promote tourism’s role in the following five key areas:

  1. Inclusive and sustainable economic growth
  2. Social inclusiveness, employment and poverty reduction
  3. Resource efficiency, environmental protection and climate change
  4. Cultural values, diversity and heritage
  5. Mutual understanding, peace and security.

A great year to take further action and issue sustainable bonds for tourism development and perhaps establish a sustainable tourism development fund.

Contact us if you are an investor or investor’s representative interested in continuing the discussion and exploring how to expand green financing for tourism.

Scott Wayne is the president of SW Associates, a Washington, D.C.-based sustainable tourism consultancy, focused on strategic planning and investment for destinations on every continent. For further information: www.sw-associates.net and [email protected].

Suggested Articles

McKibbon Hospitality manages the 200-room Hyatt House Chicago/West Loop-Fulton Market.

The Four Seasons Hotel San Francisco at Embarcadero will replace the Loews Regency San Francisco in 2020.

As much as sustainability is deemed a goal to satisfy consumer demands, the main concern remains the impact it will have on profitability.