Understanding the Limitations of Current Environmental Initiatives
By Bill Meade Director, Tetra Tech | May 06, 2010
There is a wide range of "green" or eco-ratings in the marketplace ranging from the relatively simple to the fully integrated and comprehensive. Their growth has paralleled the increased level of environmental concern in the collective conscience. Even though the hospitality industry has been slow to adapt any one of them as a single standard for many reasons, the industry as a whole has also been slow in looking for opportunities to reduce its level of resource intensity. The problem with both the slow uptake on sustainability activities and the eco-ratings is that they are tactical reactions to an issue of strategic importance.
The hospitality industry for years has dealt with environmental and other issues on a property-by-property basis. Labor, waste disposal, recycling, food suppliers and much more has typically fallen under the purview of the General Manager (GM). The wide range of municipal regulations and the importance of local market knowledge make it easier to delegate these responsibilities to the GM rather than coordinating everything centrally. In these instances, not having uniformity across a corporation is in the best interest of the local property and corporate central office because this structure helps to maximize profitability for corporate, for the property, and for shareholders. However in the last few years, many of the larger hospitality chains have recognized that particularly with environmental concerns, there are advantages in acting as a single corporate entity. Most of these initiatives coordinated through an executive-level environmental officer focus on procurement and property-based Environmental Management Systems. These are giant steps forward for the hospitality sector and kudos should be heartily extended for these efforts. Nevertheless, we need to ask ourselves if appointing an executive Environmental Officer covers all the critical aspects of corporate sustainability or whether the issue is broader.
As in all sectors of the economy, the bottom line in the hospitality line sector is maximizing shareholder value. In a carbon-constrained world the complex nature of the hospitality sector presents additional challenges. It has been estimated that on average, a one-night stay in a hotel results in 34 lbs1 of CO2 equivalent (CO2e) in Greenhouse Gas (GHG) emissions. This may not seem like a lot. However it adds up and if people adjust behavior and minimize hotel stays to reduce their individual carbon footprints then those emissions associated with each night's stay become a liability - a carbon risk - that can affect shareholder value. Multiply that risk by the number of rooms under the company banner and the numbers become significant. Is this risk appropriately and adequately addressed through current operational or financial risk mitigation strategies? Probably not.
Uncertainty presents risk, and as such, with energy and environmental changes, and regulatory uncertainty the status quo is no longer valid. The firm must look from the outside in to address the "materiality" of the risk or opportunity to the firm. This process is a relatively straightforward tool that can have profound impacts on decisions. Exploring questions of whether a given issue poses substantial risk or opportunity to the business and to the shareholders are part of strategically addressing sustainability. This includes risks and opportunities in the "court of public opinion"2 2007 saw the largest number of shareholder proxies on climate risk ever filed. Shareholders, both institutional and individual, are filing lawsuits to ensure that the companies they have in their portfolio appropriately and adequately address climate risk. To be competitive in the 21st Century requires moving forward, evolving and adapting to a new and changing environment. Those firms that take advantage of the new environment, that turn market threats into market opportunities, will not be only able to survive change but will become the most successful.
Historically for the hospitality industry, environmental regulatory risk focused more on the health and safety aspects of day-to-day business. Today however, that needs to be more broadly defined. Every segment of the economy needs to address climate change as part of its regulatory risk considerations. Recently the U.S. Congress passed legislation requiring the U.S. EPA to develop national reporting guidelines by October 2008. The Bush administration is also showing increasing signs of willingness to set binding national emissions targets, most recently at the end of February. It is quite likely that the next president will sign a bill mandating a cap on national emissions and the reporting component of that will be important.
To better understand this, we need to examine the supply chain for the hospitality sector. The supply chain for the hospitality sector is very resource intensive. Any given property requires many items daily - from regular fresh food deliveries, linens, and cleaning supplies, to complimentary use items like soap and shampoo in individual packaging. A hotel also uses a lot of water, gas to provide heating and ventilation, cooking, as well as electricity for lights, computers, security systems, hair dryers and more. Of course with everything that comes in, there is a lot going out - boxes, waste generated by the guests, food scraps, plastic and glass containers, cans, waste water, etc. Everything that arrives at the shipping dock of the hotel requires transport of various types to arrive there. The transport has greenhouse gas emissions associated with it. Every step in the production process emits greenhouse gases - from the raw material (including food) to the individual packaging and the boxes of products delivered daily to the hotel. In sum, the 34 lbs CO2e include all aspects of this value chain - from the transport of food, the water, the hot water and heat that the property provides its guests, the electricity and gas the property uses in its food and guest operations. The emissions footprint would be higher if it included the greenhouse gas emissions from the farming practices used to grow the food, the miles the employees commuted to work daily and the disposal of waste and associated landfill emissions. The final number depends on where the operator decides to draw the boundaries for their analysis.