ESG in the Lodging Industry: Building a Sustainable Business Model 

Amid a recovering post-pandemic industry, lodging businesses are increasingly considering a strong Environmental, Social and Governance (ESG) framework to create value for customers and stakeholders.

Sustainability in hospitality is being driven by an increase in awareness about the state of the world – including environmental, social and governance issues. Lodging businesses must manage impacts on the planet efficiently, enabling businesses to have a positive economic and social responsibility. In this article, we cover the steps to build a sustainable business model and considerations for an ESG framework if one is not already in place. 

ESG can primarily create value for shareholders and, as a result, create sustainability in hotels, resorts and other hospitality businesses. Lodging companies should consider an ESG framework, with the first step of creating an ESG assessment to identify material factors that affect and are value drivers for your company. In the hospitality industry, those factors can include environmental management, such as water, energy and waste. Additionally, a company may consider social factors and labor practices as primary areas that drive operational value. Once those value drivers are identified, determine which needs to be improved. The end goal is to create long-term value by increasing the value of your property. 

Not only are sustainable properties causing positive environmental impacts, but they can also attract higher-end customers who pay higher-end room rates. Consider energy management, such as utilizing renewable and solar energy, as one example that can immediately cause value. Energy costs money, so the less energy in use, the less money spent. Reducing water usage can be beneficial as well. In some sustainable properties, guests can choose whether they want their laundry done or if housekeeping is cleaning rooms every day. From a waste management standpoint, waste costs money, and it is essential to dispose of it in an environmentally friendly way. As a result of creating a sustainable property, you’ll create a more valuable property which can lead to increased cash flows for your business. 

As the demand for hotel and lodging bookings has soared, properties remain impacted by ongoing labor shortages in the hospitality industry. For example, some properties with onsite dining venues cannot open for breakfast or dinner because they don’t have enough staff, and a shortage of housekeepers can result in room turnover not being fast enough to accommodate guests promptly. Labor practices can sometimes blur the lines between environmental and social factors. For guests who choose to have their room cleaned periodically instead of daily, it can create environmental value. Therefore, you don’t need as many staff, which helps alleviate some of your labor shortages. However, the quality of your staff affects the quality of your guest’s experience. Continual turnover or instances where staff members are covering for other duties outside of their job description can impact the guest experience. 

Reducing employee turnover and hiring better staff can help maintain excellent guest satisfaction. An important way to increase staff retention and assist with recruitment is to institute a Diversity Equity and Inclusion (DEI) policy. Guests like to see diversity in the staff members at a hotel, and employees want to work at a diverse company. Another critical initiative to consider is offering increased benefits to employees. Paying above minimum wage and offering vacation/sick time can recruit more qualified employees. There is a direct correlation between employee satisfaction and customer satisfaction, and happy employees are more engaged and contribute to a better experience overall. 

To identify ESG opportunities, an assessment is the first step in the beginning of the process. Consider the following questions as you evaluate your current operations for ESG and sustainability opportunities:

As a result, you may find mismanagement in various areas. By improving those areas, whether it be in terms of energy, water, waste or employee practices, you’ll improve the company’s value. 

A consideration that is often not considered is that a hotel not only affects the property that it stands on, but also affects its local environmental footprint. Guests visiting a hotel located on the beach will expect an optimal landscape to see and experience. And if that landscape is not up to guest expectations, it can negatively impact the guest’s impression of the hotel. Taking care of the landscape and being part of the community in terms of reducing traffic or maintaining cleanliness can help preserve the environmental beauty of the hotel’s area. 

Consider the material factors of your property and identify who the stakeholders you’re looking to satisfy are. As you look at the ESG factors, including energy, environmental factors, labor practices, and any items that you manage, you should monitor them over the course of a period and try to work on improvements. For example, as you measure and monitor your employee turnover, be sure to address it if you see problems immediately. Although implementing ESG practices can seem daunting, even the simplest changes can impact a company and provide the most value for stakeholders. 

The benefits of creating a sustainable company can create value beyond just for your guests. Building an ESG framework into your business can drive value and establish better company practices in the long run. You will save money by using fewer resources and creating less waste, resulting in a positive environmental impact and increased cash flows. By demonstrating your commitment to these principles, companies can attract more employees interested in working for a company that strives to make the world a better place. And if you’re already employing such initiatives, it’s essential to put a plan in place to keep advancing on them while making calculated decisions of adding more ESG initiatives.