UK: The Energy & Environment Alliance (EEA) has released its latest report, “How Important is ESG in Hospitality Investment Decisions?”, looking at the growing role Environmental, Social, and Governance (ESG) plays in shaping hotel and lodging investment strategies.
The report was released at the EEA’s Hospitality Sustainability Symposium in London with the findings based on in-depth interviews with investors responsible for more than $360 billion in hotel assets.
Key findings showed ESG will continue to shape hospitality investment strategies, with regulatory compliance, capital market pressures, and customer expectations driving adoption.
Institutional investors and financial institutions are expected to further refine ESG benchmarking and standardisation efforts, enhancing transparency and comparability across the sector.
Gilles Clavie, chief executive officer, AccorInvest said: “Energy is now one of our top cost considerations, where it used to be much lower. This has made capex projects that weren’t previously viable suddenly interesting investments.”
Natalia Kolotneva, head of living and hospitality for Europe, LaSalle Investment Management added: “We believe that accounting for sustainability considerations enables us to protect and create value at the asset level. These considerations are integrated across the asset lifecycle, from acquisition to disposal, reflecting both regulatory drivers and client expectations. “
Key points from the EEA report
- Energy efficiency remains a primary focus for investors, driven by rising energy costs, regulatory pressures, and evolving market expectations;
- Investors and buyers are increasingly evaluating hotels’ ESG credentials, but because the impact of credentials is difficult to isolate on exit valuations there is a notable impact on liquidity. Also a clear demonstration of brown discounts or transition capex to meet ESG standards;
- Institutional investors and more recently larger Private Equity investors are leading the shift, prioritising assets which can meet their ESG criteria and can be placed on a clear path to decarbonise;
- New regulations like Corporate Sustainability Reporting Directive (CSRD) compliance are influencing many owner-operator groups and creating accountability at senior management levels;
- Most groups now have acquisition checklists but the way in which ESG is impacting investment decision making is variable. Institutional investors have already embedded ESG due diligence into underwriting processes, Private equity investors are following;
- The engagement across owner-operator groups and HNWs varies but there are examples of excellence which have attracted large private equity players looking to back credible investment strategies with a strong attitude towards risk management, of which ESG is a key component. However, all investor categories recognise the growing importance of regulatory compliance and the link between energy efficiency and asset performance;
- Sustainable finance is becoming increasingly important to the hospitality sector, with banks incorporating ESG considerations into financing terms. Addressing ESG issues is more important to get access to finance rather than to get more attractive commercial terms;
- Green bonds and sustainability-linked loans are on the rise, though access to these instruments remains limited in certain regions and
- ESG credentials are increasingly influencing corporate travel decisions and brand strategies, and although evidence of a consumer’s willingness to pay a premium remains limited and difficult to isolate, there appears to be a correlation between higher demand and occupancy.
Ufi Ibrahim, chief executive officer, Energy & Environment Alliance said: “This report makes it clear that ESG considerations are becoming increasingly important to everyone involved in owning, operating, investing in and financing hospitality assets. However, with divergent approaches, the need for standardisation is compelling – and that’s what the EEA is seeking to facilitate.”
We talked about much of the financial impact and ESG and governance in our Sustainability Bites event where EEA CEO Ufi Ibrahim was a guest at the round table.