The pandemic, Brexit and ongoing supply issues have prompted key changes in the UK’s hotel sector, many of which are long-term, if not permanent.
This is an abbreviated version of the full article, which can be found on our website, linked below. The failure to convert hotels to become net-zero carbon emitters has a major impact on the bottom line by incurring carbon credit expenses or penalties as well as excess energy consumption levels. This article analyses current asset performance, future goals and the value at risk from foregoing necessary conversions to net-zero carbon by 2050. Failure to do so results in stranding of assets – a term the real estate industry should understand as a new form of “ecologic” obsolescence. Asset owners could face impairments (present value) from US$30,000 to US$230,000 (!) per key for an obsolete 5-star hotel– a large part of which can be mitigated while improving the bottom line. Green House Gas emissions and reduction targets Among a global drive to decarbonize the economy, governments across the world have signed up to drastically reduce carbon (or GHG: greenhouse gas) emissions. The United Nations Framework Convention on Climate Change (UNFCCC) with 197 countries represented, through the Paris Agreement in 2015 and the 26th Conference of Parties (COP 26) in Glasgow 2021 implemented specific measures towards mitigating climate change by restricting temperature rises to well below 2⁰C above pre-industrial levels via the reduction of GHG emissions. CRREM pathways Globally, the real estate sector is responsible for 36% of total energy consumption and 37% of total GHG emissions. Naturally, residential real estate plays a large role along both dimensions. However, non-residential uses may be more challenging and costly to decarbonize. To achieve the intended goal of decarbonization by 2050, the EU funded a research project named Carbon Risk Real Estate Monitor (CRREM). “CRREM aims at developing a tool that allows investors and property owners to assess the exposition of their assets to stranding risks based on energy and emission data and the analysis of regulatory requirements. By setting science-based carbon reduction pathways, CRREM faces the challenge to estimate risk and uncertainty associated to commercial real estate de-carbonization, building a methodological body and empirically quantify the different scenarios and their impact on the investor portfolios.” CRREM set regional ‘pathways’ to gradually limit and reduce GHG and energy use to achieve the targets by 2050. It is important to emphasize that both metrics vary heavily by locale based on the carbon intensity of the electricity grid today and the energy use on site due to climate conditions among other factors. Thus, each country in the EU has its own pathway for different uses (residential, office, hotel, etc) and CRREM provided pathways for a selection of international markets as well. Notably, hotels are the assets with the largest carbon footprint and energy use, similar to inefficient office buildings and only trailing industrial manufacturing properties (where the processes and machinery within can create an abundance of GHGs and consume significant energy). Stranding risk as ecologic obsolescence The failure of a building or infrastructure to reduce GHG emissions and energy use below the pathway target at any point in the future results in a so-called ‘stranded’ asset. This is akin to a form of obsolescence. Next to functional (from outdated features) and economic (from changes in market conditions) obsolescence, a stranded asset could be considered to suffer from ecologic obsolescence or to be ecologically obsolete. Ecologic obsolescence is different from economic obsolescence in that market and environmental conditions need to be recognized as two distinct domains (the environment may deteriorate while markets continue to perform well, something we have observed more frequently in the last decade). At the same time, ecologic obsolescence can be understood as a combination of functional and economic obsolescence due to the transition risk. Case Study: 5-star Hotel, Sydney The point in time when ecologic obsolescence is reached is illustrated in the detail below by example of a typical Sydney 5-star hotel and the two Australian CRRREM pathways. The energy usage and carbon footprint are based on the Cornell Hotel Sustainability Benchmarking Index (CHSBI) average values for Sydney 5-star hotels. For this analysis, we have assumed a hypothetical hotel starting in 2020 as show in the first table. Decarbonization pathway for a Sydney 5-star hotel The chart illustrates how a stranded asset (via the decarbonization pathway) incurs additional expenses to remediate ecologic obsolescence by buying carbon credits. Assuming a hypothetical scenario, where this hotel’s carbon footprint remains constant until 2050, carbon credits will need to be purchased annually after becoming ecologically obsolete in 2025. The chart uses the example of a hypothetical Sydney 5-star hotel of 500 hotels rooms and 50,000 sqm GFA with a carbon footprint based on the average value from the Cornell Hotel Sustainability Benchmarking Index (CHSBI). The cost for each carbon credit is based on the Australian Carbon Credit Units (ACCUs) price as of 21 December 2021 (AUD49 per metric ton increased at inflation of 3.0% annually). The detail shows how the annual carbon credit expense increases to US$689,000 by 2050 or US$291,000 deflated to 2021 dollars (cumulative US$4,626,000 through 2050 in today’s dollars). This is a significant expense impacting a hotel’s bottom line, asset values and ultimately, investor returns while carbon credit prices are assumed to be increasing at inflation while it can be expected that prices will outpace it (see chart on ACCU prices towards the end of this article). A similar approach was adopted for CRREM energy reduction goals. Quantifying ecologic obsolescence of 5-star hotels around the world Adopting the above methodology, we analyzed twelve other markets around the world. All cities are based on the same hypothetical asset of 500 room with a GFA of 50,000 m2. The carbon footprint and energy uses are based on the CHSBI and pathways limits on CRREM. Findings are shown in the second table. Applying carbon penalties per the City of New York's LL97 (at US$268 per ton CO2 and well within the ranges outlined under the scenario analysis by NGFS) to the sample of markets, paints a more dramatic picture, shown in the third table. The combined penalties and savings for a 500-room, 5-star hotel ranges from US$31 million to US$115 million or US$63,000 to US$230,000 per key. While this is based on LL97 penalties, projections from the Network of Central Banks and Supervisors for Greening the Financial System (NGFS) shows a steady increase in carbon pricing where many markets would be above LL97 levels, as high as US$1,647 per ton CO2. Conclusion This analysis has shown the expenses, savings and penalties attributable to stranded asset through ecologic obsolescence. All stakeholders in the industry should work towards meeting CRREM pathway limits and reduce the industry’s carbon footprint and energy use for existing properties. For those that want to find out how this can be done, please contact the author. Embodied carbon presents another challenge for new hotel projects, which calls for more documentation and analysis
When thinking of the Galapagos Islands the first images that we may conjure up are of giant tortoises, marine iguanas, sharks, beautiful tropical beaches, and a laid-back lifestyle where troubles of the outside world are non-existent and one’s daily ‘responsibility’ is to swim with the dolphins. This could have been the case in the past, but not in 2020!
From pledges to on-the-ground actions; the race to decarbonisation is on. This decade is also about restoring ecosystems which are vital to the global hospitality sector. Seasoned experts provide advice on proven and tested solutions and raise new ideas tackling both climate and biodiversity challenges.
The pandemic may have disrupted global travel, but as we put the finishing touches on our new hotel in Paris, planning for a post-pandemic world was paramount. Health and hygiene is always a consideration, but it was even higher on our agenda as we sought to build the most reassuring, safe environment for guests to experience. Coupled with an ambition to use ‘best practice’ environmentally-friendly procedures throughout the hotel, we decided to adopt a revolutionary new technology to protect against pests.
Many paths in life have a way of coming full circle. On December 1st, 2021, I was one of over 100 passengers who gathered to make aviation history aboard the world’s first passenger flight using 100% sustainable aviation fuel (SAF). United is the world leader in the usage and support of SAF, an alternative fuel made with non-petroleum feedstocks. The airline has agreements to purchase nearly twice as much SAF as the known agreements of all other global airlines combined.
The global hotel construction pipeline has reached a record high, and consumers are asking developers and brands to consider sustainable construction and design initiatives. 82% of luxury travelers, for example, want to travel more sustainably in the future as a result of the ongoing pandemic, according to global travel agency Virtuoso. In an effort to meet this market demand, hotel brands, architects, engineers, and community leaders are collaborating to build eco-friendly properties, centered around sustainability, the guest experience, and efficiency.
At the end of 2020, we said goodbye to an almost universally challenging year and welcomed a fresh start, with hope for all of us in the travel industry. And while 2021 has still seen plenty of uncertainty around the world, our early optimism has paid off in some respects.
In a recent PwC survey on Environmental, Social and Governance (ESG) issues, employees expressed dissatisfaction with corporate investments across a range of environmental priorities. While 55% of business leaders said their companies are stepping up investments in climate change action, only 36% of employees agreed. Setting a top-down strategy for reducing emissions is a big milestone for any company. But how do you inspire the workforce to drive change? It should involve finding common ground with the vocal minority of workers who are climate change naysayers. The pandemic has highlighted many rifts in our communities, and climate change is one of them. In the coming months, companies should expect to play a role in bridging divides, perhaps more than many are used to.
While travel has not yet resumed its previous levels after a period of major depression, airlines are taking the time to take an introspective look and improve. We met with Romain Vetter, Head of Western Switzerland for SWISS International Air Lines, to talk about his perspective on the future and trends of air travel and the challenges that the industry is facing.
What are the latest trends in the hospitality industry? It goes without saying that the pandemic and ensuing economic downturn greater than the 2008 recession and chaos caused by fluctuation in demand have had a significant impact on hospitality throughout 2020 and 2021 - no doubt with lingering effects. Some innovative responses to this extraordinary situation like attempting to entice patrons back into food and beverage outlets and assure holidaygoers that it is indeed safe to enjoy a hotel stay, have accelerated existing hospitality industry trends and triggered lasting change.
Although the number of hotels and inns claiming to be sustainable keeps increasing, in reality how many of them are good examples of sustainable hospitality? The Black Sheep Inn in the Ecuadorian highlands is surely one of them. Recognized by various sustainability agencies, ‘La Posada de la Oveja Negra’, as it is called in Spanish, continues to attract travelers from around the world who seek profoundly sustainable lodging. The TripAdvisor’s Ecolíders Platino (2016), the Certificate of Excellence (2013), the SKÅL International Ecotourism Award (2006), and the First Choice Responsible Tourism Awards (2005) are only a few of the numerous international accolades the Black Sheep Inn has received during its 25 years of existence.
When not traveling for work, we travel to explore destinations, seeking relaxation and inspiration to recharge our batteries. As tourists, we want an environment that is clean and untouched. Nobody wants to go on vacation and lie on the beach next to a pile of garbage. Whether diving in the ocean, climbing a mountain for a glorious view, or heading out on a safari, one of the major reasons we travel is to discover foreign ecosystems and their wildlife.
Extreme weather, rising sea levels, melting glaciers, storms, and cyclones across the world are undeniable proof of climate change's pervasive influence, which has resulted in massive social and economic losses in recent years. India has not been immune, with devastating floods, cloudbursts, and landslides wreaking havoc in numerous states this year alone. International organizations and governments from all over the world have recognized the crisis and are working together to reduce the impact and safeguard the environment for future generations. At the recently concluded COP 26 UN Climate Change Conference, India, too, vowed to become carbon-neutral by 2070, a target that will necessitate unprecedented collaboration between stakeholders across industries, including tourism and hospitality.
90% of buildings are at risk of stranding no matter what pledges are made at the UN climate summit in Glasgow. With tightening climate laws and banks and pension funds cutting investment, who will control these “brown” buildings in the future?
We can hardly believe it’s time for a 2022 trends piece already, but here we are. As the western world continues cautiously down the path of recovery, we’ve been keeping a close eye on what recovery means for the hospitality industry going forward. Certain global concerns were impacting our industry pre-Covid (ethical travel, climate change, impact on the environment) and when we look at guest feelings, habits, patterns and concerns since travel has opened up, it seems Covid has magnified those issues and brought them forward so that no-one in the hospitality industry can feign ignorance.
It’s a slow, relentless march towards zero-carbon emissions for all businesses in all industries. While the goal of ‘net zero’ has been given a far-off deadline like 2035 or 2050, many corporations are already pivoting so that they can improve operational efficiencies – minimizing the ‘green premium’ as it is known in economics – as well as capitalize upon any trendsetter cachet. The beginning of October saw two major announcements in the F&B space that hoteliers should be conscious of.
In order to understand its level of sustainability and environmentally-friendly practices, EHL allowed the Beelong start-up to analyse every product and ingredient used in cooking for the school's busy food court. The Beelong audit replied to some simple questions: How to choose food products that are more environmentally friendly? How to buy professionally using criteria other than price, quality or packaging?
Personally, I hope the future holds at least one sunny holiday for me and my family on the beautiful beaches of Sarasota, Florida—our favorite vacation spot—and I know I’m not alone. The last two years have been a roller-coaster for most people around the world. With vaccines and digital health passports now making the rounds, we can finally begin looking forward to new adventures, both near and far.
Net zero commitments have surged this year as cities, investors, businesses and educational institutions signal their intent to help create a more sustainable future. This shared ambition, boosted by the UN’s Race to Zero campaign, indicates that we are moving in the right direction. But we need more. Next year must be when we turn talk into tangible action plans.