Exclusive Feature - The evolution of ESG, from useful to a necessity, is a transformation that has engulfed all industries, including travel and tourism.
Acronyms and definitions
- CSR: “Corporate Social Responsibility.”
- ESG: “Environmental, Social, and Governance.”
At first glance, these two terms may seem interchangeable, but they are different. While CSR is about doing the right thing (i.e. operating ethically and responsibly), ESG is about measuring the impact of those actions (with clear KPIs and goals). Organisations need to distinguish between these terms and create sustainability-minded cultures and quantifiable and measurable strategies.
Sustainability: “Meeting our present needs without compromising resources for future generations and maintaining an ecological balance.”
Sustainable business: “Responsible business practices and strategies ensuring that the business can continue to operate and grow in the long term.”
- The two go hand-in-hand and have become a major pressing issue for all industries. Organizations must integrate environmental, social, and economic considerations into their core strategy to create long-term value and continuous growth.
Fragmented industry: With a wide variety of ownership structures each with its own beliefs, priorities, and reporting systems, the hospitality industry does not have a strong and unified voice nor consistency.
Lack of a global standard: Companies are outdoing each other in producing ESG data and reports, making them difficult to properly understand and measure. A global standard for each industry would be of great help to all involved.
The key pillars (‘The key Ps’) of ESG: People, planet, prosperity, peace, partnership.
ESG as the creator of long-term value: It has been proven that companies that courageously pursue strong growth and profitability while improving ESG performance will deliver superior returns in brand recognition and value, with a happier labour force, repeat business, lower costs, and higher profitability/ROI.
ESG IN HOSPITALITY: The most pressing challenge of our time
The evolution of ESG, from useful to a necessity, is a transformation that has engulfed all industries, including travel and tourism.
The hospitality sector, though previously lagging in ESG, is now witnessing a rapid transformation. The increasing demand for clarity on organisations’ ESG strategies from customers, investors, insurers, and capital providers clearly indicates the need for transparency.
The growing popularity of responsible investment and sustainable finance, coupled with a rise in conscious consumerism, has put significant pressure on corporations to prioritise transparency in measuring both CSR and ESG.
Studies show that roughly 70% of institutional investors will likely avoid companies with poor ESG and sustainability performance. Similarly, estimates suggest that nearly half of business travellers, especially those attending Meetings, Incentives, Conferences, and Exhibitions (MICE), prioritise working with ESG-committed organisations.
Consumers are increasingly aligning their choices with their values, and companies that fail to comply risk losing out on a significant market segment.
Undoubtedly, travel and tourism, particularly air travel, land/sea transport, hotels, and food and beverage services, contribute significantly to greenhouse gas emissions. However, while many organisations recognise the importance of ESG, its priority lags behind short-term profitability.
The industry could do with less “lip talk” and more concrete actions regarding sustainability and sustainable business.
The increasing pressure to address environmental, social, and governance issues is not just a matter of reputation; it has a tangible impact on a company's performance and legal compliance. Ultimately, an effective ESG strategy can be a major differentiator, providing a clear competitive edge.
Environmental impact
The impact of climate change on people and nature is increasingly apparent. Habitats are undergoing rapid shifts in response to changing temperatures and precipitation patterns.
The overexploitation of natural resources to pursue economic growth and development has negatively impacted the environment and caused resources to become scarcer and costlier.
While complete reversal of the damage may not be possible, significant changes can slow the decline and pave the way for a sustainable future. The travel and tourism industry, a significant consumer of resources and often plagued by high waste, has a critical role to play – especially when it comes to reducing carbon footprint and greenhouse gas (GHG) emissions.
Remember, change always starts at the top. Addressing sustainability isn't just a moral obligation for travel industry leaders and investors – it's a sound economic decision. By driving innovative solutions from the top down, organisations can embrace a "reduce, reuse, recycle, upcycle" philosophy across all operations.
With the vast majority of the world's population breathing unsafe air, the industry must reduce emissions, limit waste, conserve utilities, use renewable energy, implement smart technology, increase operational efficiency, and champion better sustainable practices.
Training, retraining, and educating all people within an organisation – and supporting them – is not just an obligation but a key strategy for every owner and leader. Sustainable management practices are an investment – ensuring a healthy planet and a thriving tourism industry for generations to come.
Sustainable business in hospitality
This is the time for travel and tourism owners, leaders, and operators to review their strategies and rethink their entire process – from product to administration to finance to sustainability – and adjust accordingly to match shifting consumer preferences, digital transformation, and accelerated global trends.
There has never been a fiercer wake-up call for the industry, and we can't go back to how business was conducted in the past.
In today's rapidly changing and uncertain business environment, adaptability, agility, smart technology, and sustainability will all remain crucial keys to success.
Building a better future (at least not worse) is everyone's responsibility. True business sustainability requires organisations to have clear and comprehensive strategies for driving continuous, profitable growth while being mindful of their social, environmental, and financial impact.
When it comes to strategising for sustainable business, however, there is no one-size-fits-all formula, as each organisation is different and has its own organisational principles.
Creating value for all stakeholders (not only for shareholders) is usually the key objective. The aim is to create a better future for all involved without compromising the ability and prospects of future generations. To do so, we must ensure that short-term profits don't turn into long-term liabilities.
Naturally, organisations prioritise business results and profitability, but overall image and positioning are just as important for the medium-long term. When it comes to 'People-Planet-Profit-Process,' one cannot be achieved without the other.
It is a fast-changing industry, and company owners and leaders must evolve to embrace the many new business dynamics, including a new generation of attitudes and expectations from both the labour force and consumers. No business will automatically grow year after year. A sustainable vision, strategy, roadmap, and commitment are all necessary.
Additionally, integrity, honesty, accountability, respect, and equal opportunity should be core values guiding ownership, leadership, and employee behaviour.
Creating value with ESG
Any organisation must fully understand the multiple ways that environmental, social, and governmental factors can create value. It is also important to regularly acknowledge how ESG is measured. Creating value should be the core message of every leader.
Among the many benefits, ESG can create value in five critical areas:
- Top-line growth: A strong culture in ESG helps companies tap new markets and expand existing ones. It drives consumer preferences.
- Employee productivity: It helps companies attract and retain quality employees, enhance motivation, instil a sense of purpose, and increase productivity.
- Cost reduction: Executing ESG effectively can help combat rising operating expenses, such as supplies and raw materials and the true cost of energy, water, wastage, and carbon emissions.
- Reduce regulatory and legal intervention: This enables companies to achieve greater strategic freedom, ease regulatory pressure, and gain government support.
- Investment and asset optimisation: This helps attract financial support, partners, and investors, and enhances investment returns by better-allocating capital for the long term and achieving higher valuation.
Owners and leaders must work hard to analyse what matters most for their respective organisations, and where the greatest potential exists to impact them.
ESG performance is commonly measured using both quantitative and qualitative indicators. KPIs can include:
- Carbon footprint, greenhouse emissions
- Employee attraction, retention, and satisfaction
- Customer loyalty and satisfaction
- Utilities consumption (energy, water, gas/fuel)
- Renewable energy
- Quality/efficient air filtration system (MERV, HEPA and similar filters)
- Waste reduction and management
- Building management system (BMS)
- Responsible suppliers and sustainable procurement
- Social/community engagement and activities
- Ethical business practices
- Environmental policies
- Economic principles
Where possible, ESG processes and actions should be certified by a qualified body. This will enhance credibility with customers and investors.
Financial impact on the bottom line
Evidence is emerging that a better ESG score translates into higher profitability for companies in terms of increased customer loyalty and revenue (+10%?), lower operating and labour costs,,,,, (-15%?), and lower cost of capital (-10%?) as the risks that affect business are reduced. Of course, all this will reflect on the long-term image, position, and value of the brand/company.
Basics of ESG reporting
Organisations are required to disclose information covering operations and risks in the following key areas:
- Environmental stewardship
- Social responsibility
- Corporate governance
- Targets in reduction of emissions, overconsumption, and others
(Note that transparency in all reporting is essential)
The road to 100% sustainability is long, and numerous approaches will need to be tested before a company or organisation can have the most positive impact. The objective is to create a better future for all involved.
Evaluation and benchmarking template
For impactful ESG/Sustainability efforts, a company's KPIs need to go beyond just measurements. They should include clear objectives (what you want to achieve), specific actions (how you'll get there), and targeted results (how success will be measured).
Focusing on measurable environmental targets, with well-defined assessment, rating, and reward systems, further drives efficient practices and successful implementation.
Simply put, companies can't save what they aren't measuring, and if they can't measure it, they can't improve it.
Giovanni Angelini
A 50 year veteran of the Hotel-Hospitality-travel industry with a wealth of experience acquired in 4 Continents, Asia in particular. A long term resident of Hong Kong and Retired Chief Executive Officer of Shangri-La International.
A board member of several large corporations and member of many industry related and quality management organisations. Founder of Angelini Hospitality, providing consultancy and advisory work to developers and hotels-travel-tourism organisations.
Recipient of two Honoris Causa (Doctorate) in Business Administration and in Global Business Leadership, four Lifetime Achievement Awards, the 2006 Corporate Hotelier of the World, Maestro del Lavoro (2014) and of several other recognitions and awards.
www.angelinihospitality.com
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