The hotel sector accounts for 1% of global carbon emissions. Balancing sustainability and growth, whilst remaining relevant to their guests, is of increasing importance to hoteliers.
The United Nations World Tourism Organization (UNWTO) estimates the hotel sector accounts for about 1% of global greenhouse gas emissions, with the industry needing to reduce carbon emissions by over 66% per room by 2030 and 90% per room by 2050 to stay within the 2°C threshold agreed at COP21 (Paris Agreement).
Environmental, Social and Governance (ESG) initiatives are of key importance to stakeholders as the world pushes toward a low carbon economy.
“Balancing sustainable growth and expansion is key… COVID-19 has accelerated the wider [hotel] sector’s focus on sustainability.”
As hotel owners, developers and operators continue to expand into new locations and improve efficiencies and sustainability across their portfolios, there is a major emphasis from all stakeholders to do this in a sustainable way. Positive social impact, sustainable development, and energy, waste and water management remain key issues.
Balancing sustainable growth and expansion is key. While many hotel groups address these issues as part of their corporate strategy, the reality of climate change and Covid-19 has accelerated the wider sector’s focus on sustainability.
Environmental, Social and Governance (ESG)
In the last two to three years, hoteliers and financial institutions across Asia have taken significant steps to align on this. There has been an increase in the provision of sustainability-linked loans and green financing, which assist hotel groups by directly connecting the financial terms of the loan with pre-agreed sustainability goals or criteria.
In 2021, Hong Kong and Shanghai Hotels Ltd (HSH), owners of The Peninsula, signed a sustainability-linked loan totalling HKD1.25 billion (c. USD160m), refinancing an existing facility with HSBC and obtaining an additional facility with MUFG, with the loan conditions directly linked to HSH’s ESG targets. In 2019, Langham Hospitality Investment closed a sustainability-linked loan and revolving credit facility for HKD7.5 billion (c. USD955m), with 11 banks participating in the main syndication. The loan’s purpose aligns with Group’s ambitions to create a positive change for the environment and hold themselves financially accountable for their impact on the environment.
“Sustainability-linked finance is one of the tools hoteliers can use to effect change.”
Lai Sun Development refinanced existing loans to an HKD3.6 billion (c. USD460m) green loan in relation to its development of Hong Kong Ocean Park Marriott Hotel. Singapore has also seen this trend accelerate in 2020 and 2021. Ascott Residence Trust secured a 5-year green loan from DBS to finance its ‘lyf’ co-living project; Park Hotel Group secured a SGD237 million (USD176.1m) green loan under UOB’s Real Estate Sustainable Finance Framework; Worldwide Hotel Group secured a SGD405m facility from Maybank and Far East Hospitality Trust secured a SGD125 million (c. USD92m) green refinancing facility.
In 2019, Japan Hotel REIT Investment Corporation used part of the proceeds of their green bond for water and energy improvements on their existing hotels. In Australia, Aareal Bank awarded its first green loan in 2021 to one of Pro-Invest Group’s assets – Holiday Inn Express Sydney Macquarie Park Hotel – for AUD39 million (c. USD 29m) as part of its ‘Green Finance Framework’.
With regards to emerging markets, International Finance Corporation (IFC), a member of the World Bank Group, is assisting hoteliers achieve low carbon growth and job creation.
In 2020, it provided Asset World Corporation (AWC) in Thailand with a USD143 million (THB 4.5bn) facility to finance new green projects and decarbonise existing hotel assets. IFC developed its own green building standards and software system - EDGE (Excellence in Design for Greater Efficiencies) to facilitate sustainable development across emerging markets.
A growing number of hoteliers are also aligning with Earth Check – one of the world’s leading scientific benchmarking and certification groups for the travel and tourism industry.
As the finance sector across Asia enhances its role in promoting sustainable financing for hotels, we are likely to see an increase in new green loans and refinancing of existing loans as sustainability-linked loans. Understanding how to leverage these opportunities and accessing the most appropriate tool will be the key to success for those wishing to engage in sustainable financing.
As hotels are often owned, built, operated and financed by different parties, it is important for all stakeholders to be engaged early in the development or renovation process. For hotel groups, it is about creating a sustainable environment and operation, whilst remaining relevant to their guests, thereby hedging their future underlying value.
“For hotel groups, it is about creating a sustainable environment and operation, whilst remaining relevant to their guests, thereby hedging their future underlying value .”
Hotels with stronger ESG credentials may prove more attractive to major hospitality funds and investors, whereas hotel groups with less sustainable properties or operations could find themselves on the opposite end of the scale. This could reduce their appeal to investors and guests, and potentially, their ability to secure competitive financing.
According to Booking.com’s Sustainability Report 2021, “73% of travelers would be more likely to choose an accommodation if it has implemented sustainability practices.”
In addition to listed hotel groups and funds which are often governed by strict ESG guidelines, private owners and operators are also making a significant meaningful impact in this space. Both listed and non-listed hospitality groups are driving change and raising the bar and sustainability-linked finance is one of the tools hoteliers can use to effect change.
Further, as in Singapore’s recent announcement that hotels in the island state will need to commence tracking and reducing emissions by 2030, governments are increasingly willing to drive change through compliance.
“73% of travelers would be more likely to choose an accommodation if it has implemented sustainability practices.”
As the sector evolves, hoteliers must continue to explore ways to strategically align their business objectives with their sustainability goals, thereby protecting and enhancing their future value.
For more strategic advisory on hotel assets or to accelerate the success of your hotel asset portfolio in Asia Pacific, contact Shaman Chellaram or our team of Valuation and Advisory Services experts today.
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