2021: the year when sustainable development is at the top of the agenda for hotel industry players?
The main players in the hotel and leisure industry show an ever-growing interest in sustainable development as part of the management of their business. In this article, we take a look at the concept of sustainability for the hospitality industry, focusing on real estate, construction, and finance.
There have been attempts at the international level to reduce carbon dioxide emissions for decades and the Paris Climate Agreement in 2015 aimed to limit any resulting increase in global temperature to well below 2 degrees Celsius. above pre-industrial levels. There has also been an explosion in awareness and demand for sustainability across all strata of society in recent years, whether it is reducing carbon dioxide emissions or eliminating carbon dioxide emissions. plastic waste. The discussion about moving to a low-carbon circular economy gained momentum in 2020, and the UK government presented a ten-point plan in November to accelerate the path to net zero. The sustainable agenda also influences investment decisions and there is no doubt that the demand for assets with strong environmental, social and good governance credentials is increasing, especially in the real estate sector.
We are seeing that market players are placing more emphasis on the use of sustainable practices in the real estate sector. This was driven by a combination of increased demand from governments, investors and consumers. The general objective of these stakeholders is to bring the existing and future real estate stock to a net zero carbon footprint and thus to guard against the future risks of climate change.
People tell us that occupants who operate a hotel with a lower carbon footprint have the benefit of lowering the building’s running costs and are also able to establish a greater brand connection with consumers while sustaining their business. business. However, the main obstacle to the implementation of changes such as energy efficient changes is generally the high initial cost, which is usually supported by the owners who see the benefit of these improvements in the longer term.
Increasingly, hotel owners and operators are looking to improve both energy efficiency and water and waste management in their buildings in order to lower their operating costs. This is reflected in the terms of new hotel management contracts and leases, such as the parties’ obligations to use more sustainable practices in order to achieve better energy efficiency.
Technology will also continue to play a key role in improving existing and new buildings. For example, the installation of water and heating systems powered by solar energy and other renewable sources, the use of responsibly sourced materials with high recycled content and from local sources and the installation of LED lighting systems incorporating daylight sensors and automatic dimming technology.
Hotels are part of the built environment. Disturbingly, the UK Green Building Council reports that the built environment accounts for 40% of UK emissions, causing man-made climate change. In an industry that must follow increasingly ethical and environmentally conscious customers, the sustainability of hotel buildings and the way they are constructed are being scrutinized more closely than ever before and will continue to play an important role in the future.
Where they do not already do so, hotel owners and operators may consider including “green clauses” or “climate clauses” in construction contracts, in order to make sustainability a contractually enforceable obligation in this regard. which concerns all construction work. This does not only apply to the use of “green” building materials. It can cover everything from sustainable design to including incentives for energy efficient modifications or building resilience to climate change.
Modernization and renovation should not be left out in this conversation. When buildings are responsible for 40% of the world’s energy consumption and hotels are often modernized or redecorated, it is vitally important to ensure that any changes to the building structure help reduce both the carbon footprint of the property and the business.
Increasingly, hotel owners and operators are committed to reducing their carbon footprint by ensuring that the entire construction process (including renovation) is sustainable. Modular construction, already an established feature for some hotel owners and operators, is a good example, in which hotel components (“modules”), such as bathroom modules, are built off-site. in a factory, then transported to the site for assembly. Modular construction has a number of advantages including cost, economies of scale, increased construction speed, and lower energy requirements.
The past year saw the launch of The Energy & Environmental Alliance, a new coalition of hotel companies and investors seeking positive change around climate change and sustainability. The Alliance’s objective is to bring together key players in order to combine resources, share knowledge and implement new technologies. The Alliance also wants to help its members to become zero carbon companies in a profitable manner and this will be achieved through an exclusive partnership with BREEAM (the world’s leading sustainability assessment method for general planning of construction projects. , infrastructure and buildings). The aim of this partnership is to create a standard for the sustainable management of buildings in the hospitality and leisure industry. As Ufi Ibrahim said during the joint Bird & Bird and HVS webinar: “How will your business evolve for the new landscape? “(https://watch.twobirds.com/how-will-your-business-change-for) “There is a lot of pressure on the hotel industry and businesses. … Change has to happen in our industry and it (…) has to really start now ”
Innovative green building technologies look set to transform the construction industry and hotels will be a part of it. Whether the focus is on increasing profit margins by reducing utility costs or increasing a hotel’s appeal to eco-consumers, the drive to meet sustainability goals is here to stay.
Lenders have a key role to play in catalyzing the decarbonization of the real estate sector and encouraging activities and practices that contribute to broader climate change mitigation goals. Lenders are increasingly paying attention to sustainability benchmarks for funded assets, with some lenders able to offer lower funding costs for projects that meet certain criteria.
The Loan Market Association has published the Green Loan Principles and guidance on their application in the context of real estate finance for green buildings and renovation projects. To meet the criteria required for a green loan, the proceeds must be used to finance or refinance a “green project”, for example a green building or capital expenditure to improve the energy performance or water needs of a building. The project should be appraised (eg EPC performance certificates can help with this), the products checked (a separate bank account is often used) and the borrower should be accountable to the lenders for the use of the products. These requirements will be reflected in the financial documentation.
There are a number of examples of successful green loans in the market. For example, in October 2019, Derwent London signed an RCF with HSBC UK, Barclays and Natwest that included a £ 300million tranche meeting the requirements of the LMA’s Green Loan Principles. Additionally, in July 2020, Argent signed a £ 69million facility with HSBC UK and Natwest for the development of sustainable residential development in King’s Cross, London. This follows Argent signing a £ 400million facility in 2018, which was the UK’s first green loan to be used for business development.
Aside from the other challenges that the hospitality industry is currently facing, all stakeholders are focusing more on sustainability within the built environment, which is expected to continue in the years to come. This will inevitably result in a sustained trend towards more energy efficient buildings as the UK economy seeks to reach net zero carbon emissions by 2050.