The importance of ESG in hospitality: a strategic guide for hotels

The European hotel investment market soared to €17.4bn in 2024 and as investment has grown, ESG considerations have emerged as critical priorities for hotel owners, investors, operators and lenders.

ESG principles are crucial and need to be woven throughout each stage of a hotel’s lifecycle, from development to asset management. Not only can ESG measures help reduce costs and assist in gaining competitive advantage; they are also increasingly a requirement for lenders, many of which will lend only on “green products”. In short, by addressing ESG concerns, hotel stakeholders can align with evolving market expectations and increase the appeal of their assets to investors, lenders and customers alike.

But where to start? Below, we outline the key ESG measures the hospitality sector should be mindful of and set out practical action points that businesses should be taking now to meet ESG requirements.

“E” – Environmental

Green building design

Incorporating green building design at the outset of a property’s lifecycle, or through a retrofit of an existing property, is a starting point.

With the wider hospitality industry being responsible for approximately 8% of global greenhouse gas emissions and a projected pipeline of over 2.4 million new hotel rooms worldwide, embedding green measures into the foundations of every new development has the potential to reduce environmental impact significantly, both in the short and long term. Green designs are increasingly required to make properties attractive to incoming investors and lenders.

Sustainable designs are also needed to meet changing customer preferences, which are shifting toward valuing sustainability as a concern. This is reflected in Booking.com’s Sustainable Travel Report 2024, which found that 75% of global travellers had expressed a desire to travel more sustainably in the next 12 months.

Action point: Engage stakeholders early in the design or retrofit process to ensure sustainability is prioritised, creating efficient, profitable and investor-friendly hotels that align with long-term ESG targets.

Sustainability certifications

Certifications and eco-labels serve as valuable tools for demonstrating a hotel’s commitment to ESG principles. They establish measurable criteria for energy efficiency, water conservation, material usage and environmental impact.

Accredited certifications such as BREEAM and Green Tourism provide standards for operational success while enhancing market positioning with investors and lenders. Certifications offer practical advantages like cost savings and help reinforce stakeholder confidence. The cost savings associated with such accreditations are highlighted by a study from the UK Green Building Council which found that BREEAM certified buildings had 27% lower operational costs on overage than their non-certified counterparts.

Action point: Obtain sustainability certifications from recognised bodies to showcase credible ESG engagement and bolster investor and lender confidence.

“S” – Social

Community engagement

Hotels across the globe are engaging with local communities through various initiatives including collaborative partnerships with local businesses and nonprofits and prioritising hiring from within the local community. This, in some instances, may be required as a condition of obtaining planning permission.

By adopting these strategies, hotels can build stronger, more constructive relationships with their local communities, positively influence brand perception and appeal to socially conscious investors, as well as improve employee engagement (according to 40% of businesses surveyed by Business in the Community).

Action point: Create management plans to ensure hotels enhance local communities and provide tangible benefits to the local area.

Championing diversity

The hospitality sector is ranked second only to transport and communication in the diversity of its workforce.

However, this is not reflected throughout the entire business structure. Women make up 51.2% of the hospitality workforce, but they hold only 30% of executive roles, with the number at c-suite level falling further to 7%. The same is true for ethnic minorities, who hold only 6% of senior leadership positions in the UK hospitality sector.

Embedding policies to champion diversity into corporate governance and providing accessible opportunities for career advancement reinforces an organisation’s commitment to promoting inclusion at every level of seniority and underlines diversity as a business priority.

Action point: Develop policies that outline the organisation’s commitment to diversity and inclusion and ensure these policies are integrated into the company’s code of conduct.

“G” – Governance

Adherence to regulations

Operational governance is needed to ensure the safety of guests and employees but will also be required by investors and lenders before completing deals. Simple oversights such as failing to carry out an asbestos survey or fire risk assessment can cause unwanted but significant delays in transactions. Looking forward, the UK government is consulting on a proposal to require all commercial assets to have an EPC rating of A or B by 2030 – again, failure to comply will not only delay transactions but could make lenders unwilling to lend.

Action point: Ensure regulatory risks are reviewed regularly and comply with the latest legislation. To mitigate the financial impacts of new legal requirements, ensure implementation takes place over a prolonged period.