By Hervé Houdré

The purpose of this article is to change the mindset of investors, developers, operators, when considering a project development, or the take-over of a running asset, by showing that a sustainability approach can help decrease costs and improve the hotel’s revenue eventually. Not only can the strategy support a more profitable economic bottom line, but by focusing on the environmental and social responsibility bottom lines it will in turn increase the brand value of the company.

The Sustainable Development paradigm was popularised in 1987 by the Brundtland Commission as a comprehensive approach for reversing the negative impact humanity has on the planet which in turn will help humanity thrive. There is a fundamental and obvious value to understand and support this model which is the clearest expression of global interdependence.

In the corporate world it was translated through CR (Corporate Responsibility) then CSR (Corporate Social Responsibility), and we are now working on ESG principles (Environment, Social, Governance).

However, none of these models captures the true meaning of John Elkington’s Triple Bottom Line, my mantra for more than 20 years. His balanced equation (Profit, People, Planet) shows that profit is not separate from sustainability but one of its components. I believe that one of the main issues we face is that some companies and many executives still do not see sustainability as part of their business model, but worse, they see it as an unnecessary cost. In a large majority of cases their executives’ incentive scheme does not include KPIs (Key Performance Indicators) based on Sustainability.

These models contribute to consider sustainability as an ad-on and not as one of the pillars of a responsible and efficient strategy.

Moreover, accounting principles do not integrate sustainability impacts in a basic P&L report (Profit & Loss) or in a balance sheet.

For instance, the purchase of energy efficient bulbs is accounted for as an expense, but the drastic reduction of electricity cost and maintenance payroll for the next ten years are not specifically highlighted as a result of a sustainability initiative.

Similarly, identifying paid community-service hours in the P&L would not eliminate their cost, but it would preserve an accurate measure of operational productivity while transparently reporting the company’s social investment.

Today, ESG reporting is included in the valuation of a company. It would be simpler to include the savings and expenses from sustainability initiatives in the P&L—which investors and analysts examine—to show their impact on profit, while reporting the other elements of the ESG model separately.

I believe that I, together with all my colleagues who promote Sustainable Hospitality, have failed to convince the large majority of hoteliers that Sustainability is in fact a business model that helps develop operational profit and brand value when the strategy is relevant, its impacts accounted for, and its successes promoted to all stakeholders.

After having coined the term Sustainable Hospitality in 2006 I think it is time I promote the concept of Value-driven Sustainability.

Value-Driven Sustainability

Some sustainability initiatives deliver a clear financial return through direct savings and a measurable payback period. Others must be assessed through their total financial value, including avoided costs, revenue protection, operational resilience, employee retention, guest satisfaction, risk reduction and long-term asset value. The list is not exhaustive and will depend on the project, its location, and its purpose.

A review of published hotel case studies found relatively few examples presenting clear investment, savings and payback figuresand I encourage hoteliers to publish more case studies in order to convince their peers that a well-planned sustainability programme will develop the brand value of their property.

Some food for thought.

Investment

• When incorporated from the earliest design stages, sustainable architecture, engineering and construction can improve long-term investment returns through lower operating costs, greater resilience and stronger asset value. Hotel-specific evidence remains limited, but a 2014 Cornell study of 93 LEED-certified hotels (Leadership in Energy and Environmental Design) found that they achieved stronger revenue performance than 514 comparable competitors during the first two years following certification. This study is focused on the potential impact of LEED certification, which is obtained through sustainable building criteria.

• More recently, a 2023 study of sustainability-certified hotels in Florida found that certification can improve performance relative to competitors, particularly when a hotel benefits from being an early adopter.

• Although hotel-specific comparative data remain limited, it is interesting to know that studies across other commercial building categories indicate that sustainability does not necessarily add substantially to construction costs. A 2019 cost analysis prepared by WSP Global inc. for the City of Alexandria, VA estimated that achieving LEED Gold could add approximately 0.5%–2% to office construction costs and 0.4%–2.4% to multifamily construction costs.

• A 2023 CBRE study indicates an average gross premium for green building certificates of 6-8% (rents) and 14-16% (capital values) which, even though the study is not specific to the hotel industry, supports the argument that sustainable buildings offer long-term value creation.

Revenue

We must recognise that, even though travellers usually express a preference for sustainable accommodation when surveyed, research indicates that location, rate, guest ratings and booking conditions remain more influential in the final hotel selection.

However, there are some good reasons to still believe that revenue will be enhanced by a genuine sustainability strategy.

• Guests are now expecting some basic initiatives in hotels: Housekeeping linen programme, no single-use plastic bottles and containers, hiring of local staff at both employee and management levels, promoting local designs and designers, regional produce and products, etc. In this case, guests will feel a true connection with the local environment and communities, and all things considered, will choose such a property rather than one that is not adopting that strategy. A further advantage is when the hotel can boast a recognised certification.

• It is rather challenging to have genuine and trustworthy data on the leisure market, on the other hand, corporate clients are asking hotels for their sustainability credentials before signing a contract with a property, which validates the revenue opportunity of that strategy.

Expenses

Scrolling down a P&L report one can notice some major opportunities, and certainly many others, which may vary depending on the property’s location and structure.

• Food cost
  • A focused approach to reducing waste will direct the hotel to create precise recipes, programme seasonal menus properly, beware of over-purchasing, calculate appropriately the amount of food to prepare every day, ensure buffets are not over-loaded, and use the services of food waste tracking technology, such as Winnow, Kitro, or Leanpath.
  • An interesting case study is that of the Four Seasons New Orleans that reduced their food waste volume by 48% and saw an annualised reduction in waste value of $65K thanks to the AI (Artificial Intelligence) based Winnow technology.
  • Following the total financial value principle, procuring food and beverage produce and products locally can present financial and operational advantages: lower transportation and intermediary costs, fresher products and reduced spoilage, flexible ordering, story-telling, menu differentiation, and community relationship.

• Payroll
  • Payroll being the largest expense of a hotel it is important to review all the positive impacts a solid Human Resources strategy can bring to a hotel. Hiring local staff makes business sense, on top of being the right thing to do for locals and for guests alike.
  • Focusing on employee satisfaction through fair salaries, benefits, proper uniforms, locker rooms’ comfort, staff food, health and safety, learning & development, will contribute to a better employee retention ratio.
  • Consequently, this will mean less turnover, therefore less recruitment costs and training needs, and less absenteeism. It will sustain consistency in service quality, guest recognition, and more importantly, guests will recognise the staff and feel what all hotels in the world strive to deliver to their guests: the sense of being home. It will improve the emotional connection guests develop with the employees and the property and it will eventually enhance revenue.
  • This strategy may be the most relevant to help a hotel increase its revenue organically.

• Other expenses
  • Many opportunities to decrease other expenses lie here, such as liquid bathroom amenities that will reduce the amount of solid waste, and their cost; displays of local flowers and indigenous plants; digitalisation of paper support in the front and back of house; housekeeping linen programme that will reduce the consumption of water, detergent, energy, payroll and wear & tear.
  • Single-use plastics deserve specific attention as it is an overwhelming disaster for the planet and unfortunately, there will not be a universal solution until technological breakthroughs are achieved. However, the first step is to inventory all plastics and find replacement solutions that currently exist but beware of the lures of PLA (polylactic acid), bioplastics, biodegradability, compostability, etc. Do not hesitate to challenge and ask the vendors how to divert them in your region, and if they need industrial composting or can be recycled easily. Replacing single-use plastic by reusable material should be studied by the hotel as they can considerably reduce carbon emission and costs.

• Energy, Water, and Waste-related operating costs

These important components of a hotel infrastructure are top of list to reduce the carbon footprint of a hotel, and a sustainability approach will help the hotel management focus on all opportunities to reduce these expenses.

• Energy
  • The list of actions is vast, and includes recording all data, commissioning a retrofitting audit, having a very strong proactive and efficient maintenance programme, installing energy efficient lighting, sensors and timers, heat-recovery chillers, heat pumps, heat-recovery ventilation (HRV), seawater (or lake water) air conditioning system (SWAC), and of course local renewable energy opportunities.
  • Here as well, it is difficult to find recent and relevant case studies but a very telling case study is that of the Hotel Monaco, Washington DC which invested $1.8M in retrofitting, obtained a 28% and $447K annual energy cost saving and a 41% and $37K in water cost savings, approximately a 3.7 years simple payback. The Monaco example being from 2012, I can only encourage hotels to publish more ROI (Return On Investment) calculations, which will comfort owners and developers to consider a sustainability approach for their project.
  • I am looking forward to following the Radisson, Net Zero Verified Hotels, and hopefully get some great ROIs, not only in terms of costs, but as well in terms of revenue. Radisson announced recently they are scaling Verified Net Zero hotels from a two-property pilot into a multi-year programme targeting 100 hotels by 2030, a bold and great move.

• Water
  • Recording consumption data is revealing, not simply to compare water consumption over regular periods of time, but to detect if there is a sudden surge of water consumption which could mean a broken pipe or joint. Dividing the whole building into various sections will help the quick detection of a faulty installation.

• Waste
  • All waste streams must be recorded, their production and diversion identified to be able to reduce them as much as possible. This strategy will reduce costs by reducing quantities and selling recyclables, including in certain locations, food waste to farms.
  • I suggest to now go much farther than the old ‘3 R programme’: Reduce, Reuse, Recycle. I am introducing the ‘7 R framework’: Record, Rethink, Refuse, Reduce, Reuse, Recycle, Recover, which I will detail in a further communication. This will support hotels willing to reduce their waste production, as well as their waste hauling costs, and encourage them to focus on how they divert it.

Risk Management

• A thorough sustainability strategy should include a risk management analysis, which means that the hotel will preemptively inventory all potential risks that it could be facing, whether environmental, community related, Health & Safety, operational, etc.

• By being proactive the company may discover areas of their business model that could have become a liability otherwise.

• Within the scope of risk management comes brand protection, analysing potential issues with any and all stakeholders.

Brand value

To summarise, by initiating, developing, and continuously improving a holistic sustainability strategy, and ensuring that every aspect of the business model is analysed through the lens of value-driven sustainability, the owner and operator will contribute to increase the profit, and eventually the brand value of the property and the company.

I welcome comments and, particularly, hotel case studies presenting clear investment, savings and payback figures, that can help strengthen the business case for Sustainable Hospitality.