Some green-eyed investors are adopting new tactics to persuade hotel owners and operators to cut their carbon dioxide emissions.
Climate-related risk is on investors’ minds when they look at their hotel portfolios.
That’s the word from Gilda Pérez-Alvarado, who spent last month on a world tour speaking with hotel investors. she is the executive director of hotels and hospitality of the Americas for JLL’s Hotels and Hospitality Group.
- “It was brought up in every one of the meetings we had in the Middle East and Asia,” Pérez-Alvarado said in an interview before taking the stage at Skift’s Future of Hosting Forum last week.
- “The biggest challenge is that there is no playbook that specifically lets investors know what they need to follow to get a favorable rating or handle scrutiny from regulators,” Pérez-Alvarado said.
- “When you look at the end investors in many real estate funds, you will see sovereign wealth funds, pension funds and other institutional investors,” Pérez-Alvarado said. “These investors are becoming much more demanding that their investments have a path to net-zero carbon emissions and are insulated from future regulatory and litigation risks.”
In April, Ascott Residence Trust issued a sustainability-linked bond, apparently a first in the hotel sector, worth around $143 million (Singapore $200 million).
- “I sat down with them in Singapore,” Pérez-Alvarado said. “It was brilliant. It was oversubscribed, which indicates investor appetite.”
- Sustainability-linked bonds are different from green bonds. They set macro goals for a company, while green bonds commit to specific projects.
- Looking at travel in general, the sustainability bond is a tool that lends itself well to the entire travel and leisure industry because it provides flexibility.
- The concept of investment is growing rapidly.
- Last year, we issued about $103 billion in sustainability-linked bonds. A year before that, it was around $12 billion. The year before that, bonuses were almost non-existent.
- Ascott Residence Trust has committed to a sustainable performance target of greening half of its total portfolio by 2025.
Investors have slowly pushed companies to adopt carbon reduction efforts.
- “The second [the U.S. Securities and Exchange Commission] now recognizes the climate risk,” said Leslie Samuelrich, president of Boston Green Century Capital Management. “Therefore, larger companies are being asked to report on climate risk.”
- “Giant asset managers like BlackRock, State Street and Vanguard are developing ESG-linked products [environmental, social, and governance] standards,” Samuelrich said. “They are realizing that one of the ways to sell those products is to get attention through shareholder engagement. That means more often they vote for their representatives on climate issues, which is a game changer for them.”
- Green Century has coordinated shareholder resolutions, board appointments and educational sessions for company management teams on behalf of some 120 institutional investors representing more than $15 trillion in assets.
Investor action in a travel company can have a ripple effect affecting hoteliers.
- Here is an example. Last year, a shareholder initiative successfully forced stock reservation to do a climate change report. The report came out last month. Now the effect is cascading.
- “Booking.com has started assigning a sustainability rating to hotels,” Pérez-Alvarado said. “That can change demand, especially among millennials in Europe who travel around the world, and affect portfolios that are lagging behind.”
- Investors are increasingly suspicious of companies that rely heavily on purchasing carbon offsets because that tends to be a sign of procrastination rather than planning.
- However, the process remains murky and slow. There is a debate about measuring greenhouse gas emissions that contribute to climate change. IFRS Foundation, the international accounting standards-setting body, has been working in recent months on setting standards for emissions-focused reporting with a board created in November. His work will affect how investors assess climate risk.
- global S&P has started rating companies on sustainability. Rated your 2022 Sustainability Yearbook Hiltons around the world, Meliá International HotelsY NH Hotels tops its hotel ranking.
The construction of net-zero hotels, or properties that aim to limit carbon emissions linked to construction and operation, is the most dramatic new trend.
- A collection of private investors have backed a newly announced net zero emissions hotel project in Denver. When it opens in late 2023 or early 2024, population may become the first “carbon positive hotel” in the US by combining offset actions with other carbon reduction methods.
- “Our company builds environmentally responsible projects without compromising return on investment,” said Jon Buerge, director of development for urban towns, creating the hotel. “A decade ago, we developed a net-zero residential project in California called West Village that generated a tremendous return on investment.”
- “Essentially, we will be able to sell hotel rooms at higher prices than the competition by appealing to climate-conscious consumers,” Buerge said. “Demand growth will outstrip supply over the next decade, as strange weather and natural disasters sadly make climate change more personally relevant.”
- The company has hired consultants to estimate the carbon emitted by building the structure, including the carbon emissions to create materials such as concrete, steel and wood, and to estimate the amount of carbon a building emits on a day-to-day basis. Developers can switch to less carbon-intensive materials.
- “The emissions that we can’t reduce, we can offset,” Buerge said. “We’re looking at options, and we could sequester carbon by planting about 5,000 acres of forest land.”
Some other companies are attempting net zero emissions or carbon positive hotels.
- Hotels in Londonan American operator, opened the 165-room hotel last month Hotel Marcel New Haven, Tapestry Collection by Hilton, which is intended to be net zero. Features include triple glazed windows to minimize heating and cooling loss.
- Hotels and Resorts Six Senses last month signed to operate a plan Svart hotel in Norway that will aim to generate more energy than it consumes, with a net zero carbon impact.
- room2A London-based budget operator of “hometels”, or apartment-style travel accommodation, is expanding on its promise of low-carbon operations.
Efforts to make the hotel sector more climate-friendly often seem to have a rhythm of three steps forward and two steps back.
- For example, this year’s energy crisis in Europe due to the Ukraine war has begun to tempt some investors, such as BlackRock, to postpone initiatives on climate change.
- But carbon emissions continue to alter the climate in the meantime.
- Whoever “greens” their portfolio first stands to benefit when demand for low-carbon travel revives, said Neil Dipaola, chief executive of Autocamp. Dipaola has won awards for his work on sustainable development in California.
- “If you are concerned about the long-term sustainability of your business and your children, then you will be thinking about ways to remove single-use plastics from your properties and put solar power on your roofs and energy storage under your buildings to reduce your he needs to be on the grid,” Dipaola said.