Industry Update
Opinion Article11 November 2010

The Standardization of Sustainability

By Eric Ricaurte, Founder at Greenview

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Just exactly what is sustainability, and how do we define it in our business? The hotel industry has been asking these questions for years, on one spectrum end as strategic exploration of the subject and on the other as a pretext for inaction. While hoteliers grapple with sustainability by focusing on certification, a de facto universal business approach to sustainability has emerged within the past decade: the Global Reporting Initiative. Through its framework and guidelines, the Global Reporting Initiative (GRI) sets the general scope of sustainability in application. The premise of this framework is that a report is produced, outlining a business's approach to sustainability through a series of disclosures and performance indicators. These indicators are spread across economic and environmental issues, as well as social aspects that deal with product responsibility, labor practices, human rights, and society. The GRI does not certify or judge the quality of the information reported, which is left up to the reader.

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Presently, 80% of global 250 companies and all of the 100 largest firms in the US have produced sustainability reports, the vast majority directly adhering to the GRI. Though this figure drops to 30% among global 2000 companies, reporting is expected to grow quickly. With this framework, the process of producing a report inherently implies that a company engages its stakeholders in dialogue, actively measures its performance, and strategically approaches such issues. This goes much deeper than its guise of a mere report, since the reporting steps themselves can constitute a strategy, especially for organizations with embryonic sustainability platforms. In addition, these reports provide for an analytical evaluation of sustainability. More importantly they allow for comparison among peer organizations. Furthermore, over 75 performance indicators encompass a wide range of issues as identified by stakeholders, some not covered in other frameworks, certifications, or guidelines. And as new critical issues emerge within our society, a comprehensive approach ensures long-term applicability. For example the Carbon Disclosure Project has added water disclosure to its scope. Perhaps the CDP wishes it had named itself the Global Disclosure Project to avoid a carbon-only connotation, as opposed to a corporate data resource for a wider range of impacts on ecosystem services.

Sustainability Valuation

GRI prevalence and sustainability's standardization surprisingly springs from the investment sector. In the investment and publicly traded company realm, corporate sustainability information is known as Environmental, Social, and Governance (ESG) data. The United Nations Principals for Responsible Investment (PRI), which call for active promotion and integration of ESG information into investment decisions, are growing and have over 650 signatories. These include several investment managers and pension funds that within their portfolio allocate capital to hotel real estate or serve as senior lenders on hotel notes.

Judgment calls of just how "green" or sustainable a company may be are obviously beyond the scope of today's investment analysts. They therefore generally look to ESG data, often as related to valuation ratings and indices. Bloomberg terminals now have ESG data available with financial analysis. A multitude of sustainability ratings and data providers have emerged over the past decade and have seen rapid consolidation. Two examples: Thomson Reuters provides information on ESG KPIs and MCSI offers thematic ESG indices as well as ratings and analysis. And of course the Dow Jones Sustainability Index and NASDAQ OMX CRD Sustainability Index use ESG data. All of these organizations draw their data from company GRI reports, the base source of information for socially responsible investment and sustainability valuation decision-making.

Integrated Reporting

As a result, one of the major trends in sustainability reporting is the push to integrate sustainability information into company annual reports, effectively bridging financial information and ESG performance. This summer the International Integrated Reporting Committee (IIRC) was formed with this objective in mind. Several key players from multilateral institutions, sustainability non-governmental organizations, accounting firms and standards organizations, multinational corporations, and academic institutions are working toward this goal of integrated financial reporting. The GRI has advocated the goal of developing a global standard for integrated reporting by 2020. Currently the governments of France, Denmark, and Sweden mandate sustainability reporting in some form, and this year South Africa became the first nation to require integrated reporting.

Sustainability indices, ESG ratings, and integrated reporting have led to a Romeo & Juliet affair between accounting and sustainability. The big four accounting firms have embraced sustainability reporting as part of their service offering. GRI-certified training in North America often includes venue sponsorship and guest presentations on Assurance from the large accounting firms. The GRI just opened a focal point in New York a few weeks ago. This was made possible by sponsorship from all the big four accounting firms, eager to add two more balance sheets to annual report preparation, and with a squadron of change management consultants studying up on sustainability to implement the GRI process. Though it may make environmental and CSR veterans squeamish, this represents a formidable path for corporate institutionalization of the triple bottom line.

Standardizing the Proverbial Question

The ultimate irony of reporting standardization through the GRI is that this framework calls for continuous asking of "what is sustainability?" within the organization as well as to stakeholders. Specifically, the reporting process asks the organization to go through an engaged practice of defining what key sustainability issues are material (watch for this term's expanded emergence in the future) to the business, then subsequently disclosing how they are approached and what resulted in performance. A continual process allows for flexibility in addressing the dynamic nature of sustainability and the challenges we face as citizens of this planet. It is not surprising then that many companies use the word citizenship to encompass their approaches to areas termed corporate responsibility, sustainability, and ESG. Considering that corporations were designed to be treated with legal status similar to a person, turning companies into global citizens sounds promising (rather than psychopaths as hypothesized in criticizing documentaries).

This refreshing concept helps generate insight, since sustainability discussions within the hotel industry often have been unique in that we are quick to delve into solutions without first spending time identifying and understanding the problems. The GRI deals with the What and the Why to the equation, but leaves the How up to the organization and related standards or protocols. Conversely, a universal framework based on engagement, materiality and performance disclosure helps maintain focus down the sustainability rabbit hole. Some examples of relatively new and very real concepts in this space are water footprinting, The Economics of Ecosystems and Biodiversity (TEEB), Payments for Ecosystem Services (PES) with related mitigation banking and biodiversity offsets, GHG Protocol Scope 3 and Life Cycle Accounting and Reporting Standards, and new ISO numbers.

Industry Implications

For publicly traded hotel brands, this article probably comes as nothing new. For those wishing to access capital, build, acquire, sell, refinance, and put flags on hotels, being versed in sustainability reporting and ESG ratings may provide a competitive advantage if it does not become an all-out necessity, as supply chain engagement is one of sustainability's key trends. And for management at property- and portfolio-levels, an approach that considers the disclosures and performance indicators used in the GRI guidelines should be taken when developing and rolling out sustainability initiatives. Companies in our industry should closely review the required disclosures and performance indicators to understand what potential issues may arise within this framework's context, and how those disclosures could impact the companies.

First, as an industry we finally may be able to talk about initiatives other than energy efficiency and green meetings. Second, the disclosures and performance indicators can encompass topics delicate to the industry, such as a few direct linkages with other frameworks including the UN Global Compact. Action is needed to address these issues coherently. Finally, just as other industries have banded together to identify issues of common materiality and standardize the metrics utilized in producing reports, comparable data is needed improve the overall visibility of the industry lest it be judged by outside benchmarks. For example, someone looking at ESG data on a Bloomberg terminal may wonder why a management company's corporate spending on social responsibility per employee is significantly less than that of companies from other industries. Some industry players have begun to recognize the implications of these trends, and are working to put forth studies and groups to advance this dialogue.

"Green" may be a fad, but sustainability is certainly not. Most of the major hotel companies and even some hotel REITs have expanded their corporate responsibility and sustainability department in preparation for the complex programs and responses to issues that lie ahead. These departments will soon have new dotted line links which will certainly be an interesting addition to those of marketing and operations that previously held much of the buy-in power. The question "does green pay?" takes on an entirely new dimension.

Eric Ricaurte, a member of Cayuga Hospitality Advisors, has over 10 years of experience in tourism and sustainable development work within hospitality. A graduate of the Cornell University School of Hotel Administration and M.S. in Tourism Management candidate at New York University, he began his career managing a rainforest lodge and tour operation in Costa Rica and winning a student research finalist award in 2001 for his work titled "Carbon Sequestration, Credit Trading and Offsetting, and their Relation to Travel and Tourism." Since then Eric has consulted for a wide range of hospitality and tourism businesses in the US and Latin America. He currently helps hotel owners and operators produce sustainability reports and address related issues of metrics and measurement. He produced the first hotel property-level GRI sustainability report in 2008 and the first hotel adaptation of the Global Sustainable Tourism Criteria in 2009. His chapter, "A Guide to Measuring Sustainability" is included in the forthcoming AHLA Educational Institute textbook Hotel Sustainable Development: Best Practices and Principles, to be launched in January 2011.

Eric Ricaurte

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    About Cayuga Hospitality Consultants

    Cayuga Hospitality Consultants is a global network of independent consultants focused on the hospitality industry. Consultants are available to work independently on assignments or can be organized as a team or task force to achieve the greatest possible results for our clients. Areas of expertise include operations, sales, marketing, finance, asset management, development, technology, insurance, litigation and sustainability for all areas of hospitality, including hotels/resorts, spas/clubs, restaurants/bars, and casinos. Consultants’ goals are to provide practical, profit-oriented advisory services across a broad range of hospitality property types and business models plus hands-on support implementing their recommendations. For more information, view their hospitality consulting services or follow them on LinkedIn.

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