Hotel investors look to balance sustainability, profitability

CEO of International Campus Rainer Nonnengässer, Room Mate Hotels Founder Kike Sarasola and A&O Hostels Founder Oliver Winter discuss sustainability at IHIF. Photo credit: Mark Green

Environmental concerns and a call for sustainable methods of living have been in the news for decades—Earth Day was launched in April 1970—and the issues continue to resonate with today's generation. Indeed, Sweden's teen activist Greta Thunberg's call for action on climate change has helped put sustainability in sharper focus for everyone, including hospitality investors. 

But how seriously do they take the issue and what does it mean to them? This question has quickly become a running theme at hospitality investment conferences this year.

The Brands' Take on Sustainability

Pushed by customer demand (and the chance to reduce some of their operational costs), large hospitality groups have been promoting sustainability programs for some time: Marriott’s Serve 360 program, Hilton’s Lightstay platform and Accor’s Planet 21 program (to name but a few) are all boasting sustainability goals. 

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Smaller hospitality groups, too, are vocal about the issue, and some argue their more-nimble size allows them to take more-impactful actions. Kike Sarasola, founder of Room Mate Hotels, made this point at the International Hotel Investment Forum (IHIF) in Berlin last March. He argued hotel groups need to take more significant initiatives than token ones such as banning plastic straws. He noted long gone are the days when asking guests to reuse their bathroom towels was enough—and was it ever? 

Sarasola’s group considers its sustainability policy as a whole operational strategy, all the way down to using recycled materials for its staff’s uniforms. At the meetings of CEOs that took place at IHIF, a number of his peers supported his view and called for longer-term thinking to become more prevalent in the industry–something the larger hospitality groups may struggle with as their shareholders or private-equity owners focus on year-over-year results. Smaller hotel operators may be more able to push the sustainability agenda and to make it a differentiator that will help reach their target audience.

Are Investors Interested?

What of the investors’ perspective? Some are clearly showing more commitment toward sustainability, while others still consider it a "nice to have" but not an integral part of their decision process. 

At the IHIF Advisory Board meeting this month, a handful of private-equity firms said sustainability is increasingly taken into account by investment committees and is included in their reports both on the operational and the real estate levels; however, a considerable number remain skeptical about the investors’ intentions: As much as sustainability is accepted as a goal to satisfy consumer demands, the main concern remains the impact it will have on profitability. 

At the development stage, investors and developers are not likely to be paying more for an environmentally friendly building; at most an investor may go for an environmental certification—but not to the highest level. The main idea is: "What is the minimum we can do to be perceived as being sustainable without adding costs?"

What Support is Needed?

What is clear is the hospitality industry needs support to work toward clear and effective sustainability objectives. At an event in London in April, Portugal’s Minister of Tourism Ana Mendes Godinho explained how her government is setting up environmental goals for its hotel sector, supported by financial instruments, regulation and encouraging links with relevant technology companies. 

The lack of widely recognized certification is another issue slowing down the promotion of sustainability in hospitality, as was discussed at the advisory board held in May for the Mediterranean Resort & Hotel Real Estate Forum (MR&H). When it comes to the building stage, the Building Research Establishment Environmental Assessment Method (BREEAM) and Leadership in Energy and Environmental Design (LEED) accreditations are widely recognized environmental assessments, but they don’t cover all aspects of hotel or resort products. A model specifically designed for hospitality would help guide investors, developers, operators and consumers, according to the board. 

Lacking clear and consistent support, it is often down to individual companies to design their own sustainability programs, which may vary considerably and may only be affordable for luxury properties.

The issue of sustainability will continue to be a major subject of discussion at industry conferences. As groups do their best to communicate their environmental commitments, the main question is likely to remain: Can sustainability be profitable?

Sustainability will be one of the main themes covered at the Mediterranean Resort & Hotel Real Estate Forum (MR&H), taking place in Athens, Greece October 29-31. Register here. MR&H and IHIF are both presented by Questex, the parent company of Hotel Management magazine. 

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