Hotel owners largely have been able to sit in the backseat of the sustainability discussion. Early on, not much was needed given the relative proactivity of the brands and management in dictating sustainability platforms for properties. But just as the hotel industry’s fragmentation silo-ed the discussion within the chains, it ultimately required active involvement of all key groups of players for real change to occur.
Now enter the owners, faced with an environment of evolving building codes, brand standards and patented software solutions, as well as new dialogue, risks, and opportunities in the name of sustainability.
Finding solutions
According to Jeanne Varney of Olive Hospitality Consulting, the differing strategies of owners add complexity to the situation. Owners looking at long-term holds might have incentive to invest in heavier efficiency retrofits, but those more actively involved in short-term buying and selling might be less interested because of the higher costs and longer paybacks.
“Given a hotel’s large consumption of energy and the ever-increasing efficiency of building systems equipment, many owners look at these retrofit (returns on investment) as ‘no brainers,’” Varney said. “However, large amounts of capital may be necessary. If an owner is cash-strapped or they don’t plan to retain the asset beyond the expected return period, a great project could go by the wayside.”
But just like almost every other sector and facet of business—including the investment and lending community—owners are now becoming more actively involved in solution seeking and evaluating for several reasons:
First, there is the onslaught of new vendors of all things sustainability who have now caught on to the fact that most hotels are not owned by the corporate brands. These vendors are approaching owners and asset managers with their products and services.
Second, if property ownership ultimately has to sign off on the large capital expenditure energy efficiency retrofits as suggested by management, then it needs to do its own financial analysis to make any decisions. After all, aren’t they the real experts on ROI, net operating income, internal rates of return, discounted cash flow and net present value? But this also requires studying up on the trends, technologies and solutions in order to make informed decisions. (Side note on the buzz of rising energy costs: There is a big difference between the future price and availability of coal versus oil and hence electricity versus fuel in the United States).
Third, as owners of larger portfolios with diverse brands are simultaneously approached with many separate solutions, they find the need to “flip the script” and start driving the retrofitting, implementing or certifying from their end so as to consolidate the decision tree—and of course maximize ROI. Even those with a short-term hold strategy can be engaging in operational efficiency measures that provide immediate returns.
Finally, investors, shareholders and management might just start asking for Environmental, Social and Governance, or ESG, disclosure from hotel owners of publicly traded entities, opening up a whole new discourse. And in many cases, just asking the question is enough to spur change given today’s highly competitive business environment. After all, no one wants to respond with an “I don’t know” to a question asked by any current or potential client paying them, a lender handing them money, a partner recommending them or an expert evaluating them—especially if a competitor does have the answer to the same question, and with specific decimals and percentages.
The evolving role of owners
One clear attestation to the evolving role and participation of owners in hotel sustainability is the example of Hersha Hospitality Management and its sustainability program, EarthView. The company recently launched the program by working with one of its property ownership groups, Hersha Hospitality Trust.
“EarthView is Hersha’s triple-bottom-line approach to hospitality. We believe that focusing on the social and environmental bottom lines of our business will improve our financial bottom line,” said Bennett Thomas, program leader and VP of finance and sustainability for Hersha Hospitality Trust.
By starting with the basics such as changing light bulbs, Thomas was able to get all properties behind a common platform, much like the brand solutions such as InterContinental Hotels Group’s Green Engage or Hilton Worldwide’s LightStay. Luckily, the low-hanging fruit in this industry is still an abundant resource, and the quick-win savings of EarthView’s first phase then enabled deeper dives into more robust and hard-hitting measures.
Beyond the basics, Hersha recently launched a partnership with non-profit Clean the World to annually provide more than 1 million bars of recycled soap and 500,000 bottles of recycled shampoo, gels and lotions for distribution to children and families worldwide. Hersha will be the largest hospitality management company to partner with Clean the World since its founding.
The most innovative takeaway from EarthView from an owner standpoint, however, is the program’s holistic approach.
“EarthView’s success is measured by the positive cumulative IRR of all initiatives within the program. Even if some initiatives such as recycling or materials change-out are cost-neutral or slightly above cost-neutral, the positive return from other initiatives will provide a balance to ensure that the overall program is positive,” Thomas added.
Though the EarthView example might be a small step in the holistic approach needed for our planet’s wellbeing, it is a large and positive step in the right direction for owners in introducing Holistic IRR (HIRR, and yes I just made that up) as an enhancement to the existing best practices of squinting line-item scrutiny.
The program also will enable Hersha to answer those new questions such as, “What is your company’s energy consumption and carbon footprint?” Just like picking the low-hanging fruit, answering basic questions now will prove highly beneficial later on. Owners will face more sustainability-related questions from stakeholders, with more issues and risks continuing to pop up in a world of increasing resource constraints and a rapidly changing environment.
Eric Ricaurte works with the hotel industry and its leading companies to advance sustainability through reporting and measurement. His current activities include consulting, industry engagement, academic fellowship, column writing and publication authoring.
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