According to GlobalData’s Company Filing Analytics, environmental, social, and governance (ESG) issues were the most pressing challenges cited by European tourism companies in 2022, totalling nearly 14,000 mentions. However, GlobalData’s ESG Sentiment Poll for Q4 2023 also found that 54% of respondents from all industries believed most companies consider ESG a mere marketing exercise.

ESG practices have previously been adopted by companies voluntarily, driven by consumer pressure for sustainable, ethical business. However, a new ESG era is on the horizon. Across the globe a host of environmental laws are in the pipeline, focused on enforcing mandatory reporting, carbon pricing, and clean energy subsidies. For example, the European Union (EU) is introducing the world’s first carbon border tax on top of a host of other environmental requirements. The sustainability question is especially pressing for businesses in hospitality given the industry’s reputation for generating waste, from water to food to energy.

The practice of ‘greenwashing’ is also coming under fire, as companies are challenged on the unfounded sustainability claims they advertise by more wary consumers and governments. “I wouldn’t single out the hospitality industry when it comes to greenwashing,” says Nicholas Wyatt, GlobalData’s head of R&A for travel and tourism. “But there is an acknowledgement of the need for serious action. Sustainability can’t simply be a marketing exercise – follow through is needed. And there have been positive developments in how companies are reporting on their successes.” Communicating sustainability credentials effectively has never been more important to managing a sustainable hospitality business.

Developing a credible sustainability strategy

For the hospitality sector to thrive in future, it is essential that operators and owners of all sizes implement strong sustainability strategies to protect the planet and safeguard their businesses against new regulations. Positive developments are already underway, such as the World Travel and Tourism Council’s (WWTC) global Hotel Sustainability Basics initiative that has reached more than 1,700 hotels across 70 countries. The scheme encourages participants to adopt a 12-step sustainability programme to reduce carbon emissions, promote nature conservation, and give back to local communities. Major international hotel brands who have adopted ‘the Basics’ include Jin Jiang, Louvre Hotel Group, and Raddison Hotel Group.

Hospitality businesses have much to gain from adopting a strong ESG strategy. With younger consumers becoming more concerned with their environmental footprint, and more discerning at identifying greenwashing marketing practices, a good ESG reputation will boost a business’s financial performance. Over four years (2018 to 2021), GlobalData surveyed adults across several generations regarding their typical holiday. From 2018 to 2021, ecotourism saw the most significant increase in popularity, growing to represent 19% of respondents’ holidays in 2021 compared with 14% in 2018.

Furthermore, as Wyatt points out, hospitality is under unique scrutiny: sustainability in the sector extends beyond a business’s headline emissions figures. “ESG in hospitality is wider than many people think.,” he argues. “There are concerns around energy usage, but there is also an ESG perspective on things like food and water waste. Some of these don’t come up in other spaces so much.”

Key thinkers such as David Attenborough and Greta Thunberg have been immensely influential in driving public awareness of climate change, enhanced by a proliferation of sustainability content on social media platforms. GlobalData’s survey highlights how this discourse has affected younger people most prominently, with 23% of Millennials reporting that they typically take an eco-holiday. To engage this demographic, businesses must take care to adjust their practices in line with the most forward-thinking ESG values.

Communicating sustainability credentials effectively

It’s not just demand from consumers that is pushing the latest ESG drive. GlobalData’s ESG Sentiment Poll for Q4 2023 also found that, while most respondents (35%) cited customer demand as the primary reason for setting up an ESG plan, pressure from investors was mentioned by 30% of respondents. This is an increase of 13% from the previous quarter’s poll.

As governments develop more stringent sustainability legislation, the pressure on businesses from shareholders to adapt accordingly is growing. All businesses in the hospitality industry must work within their organisation to implement a full ESG strategy.

According to Wyatt, this means taking a comprehensive approach to ESG. “Not just for hospitality, but travel in a wider sense, ESG is not just seen as the E. There is acknowledgement of the social impact of tourism on local communities, questions around economic leakage and so on. There’s a big interest that goes beyond satisfying regulatory pressures – ethically and in terms of brand positioning for environmentally conscious consumers.”         

Luckily, new technology capabilities mean it has never been easier to bring ESG initiatives to fruition. Key processes such as check ins can be automated through apps, and other processers made paperless to reduce consumption. Moreover, Artificial Intelligence (AI) software is increasingly being applied in connection with Internet of Things (IoT) devices to monitor and optimise water and energy use in hotels.

Reconciling complex consumer demands with the needs of the planet presents a tricky balancing act for hospitality businesses in the coming years. “There are two sides to this,” says Wyatt. “You can talk about hospitality, but travellers have to take responsibility too. On the one hand, we have supposedly more ESG conscious consumers; on the other, there are question marks around how ESG conscious some people’s travel behaviour is.” The firms most capable of communicating their ESG strategies will play a central role in bridging these gaps and driving forward a cleaner, greener sector.

Discover further insights

To discover further insights into the challenges and opportunities facing the hospitality and hotels sector, download our new report “‘Challenges and opportunities for the global hospitality sector in a post-COVID-19 world”, published in association with Sterling Technology – the premium virtual data room provider for hospitality and hotels dealmaking.