Legal Considerations for Hotels: ESG

Rachel Kerr: Hi Ben, it's lovely to have you here today to talk about ESG in the context of hotels.

So ESG, especially the E, it's increasingly shaping hotel investments, hotel developments, hotel strategies. Research suggests that 48% of UK travellers, are more likely to book hotels that demonstrate sustainable practices.

What ESG factors do you think our hotel investor and developer clients need to take into account as a result?

Ben Stansfield: I think you're right that it's the E, first and foremost, but it's some of the S, and I don't think, people who start hotels are generally too worried about the governance type issues, that’s more boardroom. So, and I think with hotel it’s quite interesting, isn't it? Because, those issues, those factors need to be quite visible to the people who are staying there.

So you can have your energy saving light bulbs and what have you, but are they really going to be noticed? So it's that mix of the really obvious sustainable stuff like, LED lightbulbs. It's the renewable energy. It's thinking about your heating, ventilation and air conditioning stuff. But do people really notice that?

I suspect they don't. So then you're looking at things like the water supply and stuff like that. So having low flow appliances, you're looking at, waste and recycling and just simple stuff like having recycling bins with lots of different receptacles and clear signage so that people can see, okay, they're taking these things quite seriously.

So I think with, environmental and sustainability issues in hotels it's half the battle is installing those things, but the other half is making it clear as consumers what you're doing and why you're doing it. So visible sustainability measures.

Rachel: So is there an element of optics there?

Ben: Yeah. And you've got to be careful about the greenwashing because we all know about the whole towel thing, . Yeah. Only use one towel a day because that saves the environment and keeping quiet about saving money. And I always think, well, if you were a little bit more transparent and said and it helps just keep the cost of room down. That would be better. But so I think there's things about , waste and all that kind of stuff is really important. But there are the social issues there are, hotels are labour intensive. And the staff at hotels are really visible you see a lot of people there.

So , ensuring you've got a diverse workforce you've got your proper policies. There are some human rights issues, I guess, with hotels, which might be slightly beyond the scope of today. But think about modern slavery and trafficking and all that kind of stuff. And there's also the supply chain. Making sure and shouting and being proud about your local suppliers, and seasonal foods in the restaurant, all that kind of stuff.

Rachel: Okay. That's really interesting, isn't because I think we sometimes just look at it through a real estate lens, but that shows that there's a lot more to consider.

Ben: Yeah. And yeah, exactly right. I'm not even touched on things like refurb. And having local artists in the lobby and all that kind of stuff. There's loads of things you can, you can do. And it's difficult, isn't it, because it's , or challenging because really easy to put up a net zero building, not easy. But the science end the engineering. Yeah, yeah. is there and actually doing refurbs is probably be more environmentally friendly sometimes. Keeping that concrete core. But that might not give you the modern layout that consumers want. And it's I think it's a real challenge between operational efficiencies and carbon efficiencies.

Rachel: So we're seeing a shift towards greener hotel designs. And investors are obviously interested in everything we've just talked about. And we've also seen and we've talked about in previous videos in this series, how lenders are particularly interested in things like better energy consumption, all of that. And I think it's generally making hotels a little bit more attractive if they comply with the ESG side of things.

But that's from a developer investor perspective. On the operations side, we've got research that suggests the eco tourism market is growing at 6.9% annually. So legally, regulatory, what do you think hotel operators need to be considering in that space?

Ben: I don't think there's a massive lead, there's not the Sustainable Hotels Act 2005, which is pushing people to act. And I think you've had the European slow down on ESG and the omnibus simplification package, which has meant that reporting to your stakeholders on ESG is less of a concern.

, we still get queries, but there are fewer as a result. And so for some of the large group, there's still a reporting issue which is driving them to act. But I think it's consumer driven. People wanting to be, staying in more sustainable places. So those consumer, choices are really important because if you're going on holiday, if you're travelling, you often don't have a choice as to how you get there. You have to fly and that's a big part of the carbon part of your journey right? So the one thing that's in your control is where you stay and you go to London or Paris, you've got literally hundreds of hotels to choose from. And so you can start to differentiate where you stay and you can make some positive choices or might start to feel a bit better about your travel if you go for a sustainable place. So I think that, I think that's what's driving, a lot of the investment. And again, with ESG, we talk about, well, I like to talk about the Moscow framework. So putting we have four different buckets, and work out what you must do, what your legal drivers are. What you should do, what you could do, what you won't do. So, MSCW. And I think the must for particularly individual hotels is there are fewer legal drivers. Yeah. So it's more about what you should do to keep people happy and what you could do to really push the envelope and be the best in your class.

Rachel: Yeah, more so than other assets, you’re so dependent on people coming in and taking the room for the night. So the more attractive you can make that to consumers.

Ben: Yes.

Rachel: The better your brand is.

Ben: Yeah, absolutely.

Rachel: And so do you think it's right to say, so we've talked before on this series about things like the Radisson just opening their first verified net zero hotel in Manchester. Sounds like you're saying you think that's probably going to stay, and that's the thing that these operators are going to stick with. But that's because it's what the consumers want.

Ben: Yeah. I'm often surprised there aren't more , brands, sub-brands within groups saying this is the eco tourism resorts and these are the net zero hotels in city centres. So I'm surprised there aren’t more of those. And then I think, well, maybe it's because actually in five years, ten years, they’ll all be green hotels. And so having a a particular brand now is either too late. Yeah. Because that ship has sailed. , it's a bit like environmental lawyers. I always think are we going have 100 environmental lawyers? No actually all the lawyers at Gowling WLG will become environmental lawyers.

Rachel: Yeah.

Ben: Because it's just a green thread through the whole asset

Rachel: Okay. So we've touched on E there. And I think that probably is the most important thing for hotels and hotel investors and developers. But there is that S as well, social impact. Have you've got any thoughts on what hotel investors, operators might do from a social impact perspective.

Ben: The most important thing they can do is have a strategy rather than just throwing mud at a wall and deciding week by week what we’re mainly going to be doing. And if you've got that strategy, then you can have your KPIs right. And so yeah, if you can, measure it, you can report on it, whether that's internal, you don't need to disclose that externally. You can just have it as an internal, measure of success and what have you. So it's thinking about identifying where you are. Because if you're a hotel in Birmingham or London or Paris or they're going to have different kind of, demographics, different people staying there, different people working there. So, I think it's about having some, thinking about what to do with your local labourers, and are they representative of the city and the environment? You're there and obviously you need certain people operating hotel with particular skills, but actually a lot of the skills you can develop and they're all ranges of skills within hotel operations. So it lends itself to that. But yeah, I think having KPI around number of people you employing from local communities, from diverse backgrounds, how many apprenticeships have you done, how many volunteer hours?

So I think, there is a lot you can do. And as I say I think it's important to have that strategy so you can go back and assess how successful you've been on it.

Rachel: Yeah. And I think it's really important for brand, as well, if you think about how important brands are for hotel operators, it goes, it goes into that, doesn't it? And as an operator or an investor, what do you want to be known for? And I think that is driven by things like social impact.

So increasingly if we bring all that together, feels like holidaymakers are actually driving the demand for sustainability. If you had to pick one ESG issue that you think people are concerned about on the consumer side of things, what would that be?

Ben: So I think it's hands down, is the availability of EV chargers. And I'm probably speaking from a slightly biased perspective here because it's certainly the number one thing I'm looking at when I’m going up to Manchester to watch Manchester United play. I’m looking for a hotel with chargers.

Rachel: Yeah.

Ben: Because more and more of us are moving to electric vehicles. Yes there are fast chargers around but obviously that cost money, and it costs time, and what have you. So I think, yeah, by far and a way EV chargers. That's the thing that consumers want. It's really tangible. It's something they actually need. It's not just a nice to have.

It's essential for a really significant and increasing proportion of people who stay there.

Rachel: And going back to the answer to your question one, it's a really obvious thing, isn't it? You can turn up and see if they've got EV chargers or not. Yes. I think really, really easy one for them to tick off.

Ben: Yeah. It shows that you're considering your consumers if nothing else. Yeah, yeah. Making sure that all their need are taken care of.

Rachel: So bringing it to a conclusion then, looking ahead for all our investor, developer, operator, clients, what do you think are the key risks that they need to be aware of, say in the next five years?

Ben: I think like a lot of our clients, one of the biggest risks that the hotels sector face is around greenwashing, it's how you communicate your messages to your customers, to your people who are staying there. And that's not just within the hotel this is the towels or this is the recycling bin. It's what you put on your website. And we've seen, in the Netherlands the Dutch Consumer and Markets Authority taking action against website hotel aggregators trying to differentiate the different hotels by saying this one's more sustainable, this one's got a little green leaf to indicate that it's got sustainability features. And that was just felt to be too subjective. And so if you want to market your hotel as being sustainable, get a third party certification. , get a certificate from a reputable organisation and it says it's got the following features. Be very descriptive about the sustainability features you've got you've got your EV charging.

We've got, we source our electricity from renewable sources. So I think it's, kind of spelling out what you've got rather than just making a bold claim that this is a more sustainable hotel than the other ones because it's kind of meaningless and it means different things to different people. Yeah. So I think communication, is really important.

Rachel: Well thanks Ben, that was really helpful. I think loads to go at there. And I think one of the takeaways I would have is that it's not just real estate, is it? There's so much that impacts and affects the hotel assets and clearly ESG is around to stay. Thank you.