Capex or opex – how should hotel industry fund ESG requirements?

skyscraper at Sunny Isles Beach in Miami, Florida
Buildings at Sunny Isles Beach in Miami, Florida. (travelview/Getty Images)

Insight Comment
While the hotel industry is making the right noises, its ambitions perhaps aren’t big enough. One of the problems with the modern ecosystem is the sheer number of stakeholders who all have to be aligned.

With pressure mounting not just from consumers but from investors and regulators, the hotel industry is having to grapple with how it accounts for ESG changes and requirements.

One of the main considerations is how any changes – and in most cases we’re talking about environmental ones – should be funded. Does it come via capex or opex?

The pressure is putting the brands, which now own much less property than they used to, in a tricky situation with their franchisees.

“It’s very difficult to go to these people and say ‘you’ve got to spend so much money because suddenly we’ve decided that we’ve changed the agenda.’ So you have to take time, you have to be patient,” said Dimitris Manikis, president EMEA at Wyndham Hotels and Resorts.

Not every hotel owner is an institutional investor or a private equity firm, some are small family businesses with one property.

“Unless you educate, train, build relationships and build the trust, you’re not going to get to where you want to be,” he added.

Manikis mostly favours opex allocation but stressed that every situation was different. He was speaking a on a panel discussion held at the recent Annual Hotel Conference in Manchester.

Alongside him were other senior brand executives from across the region.

Satya Anand, Marriott’s president for the EMEA region, agreed that it was dependent on the situation. There is, after all, a big difference between a newbuild and existing property.

“If it’s a new build you have the opportunity to invest in the right tech up front,” he said.

The initial costs might be a little bit higher but the investment would pay off in the long term.

Anand said it was all about educating staff throughout the business. He gave the example of a hotel he recently visited that had signs up in the kitchen to inform staff on food waste.

Other example of small changes include switching to LED lightbulbs and using aerated shower heads.

“I think you have to look at what advice can be given around near term ROI investments that can give a fast return,” said Karin Sheppard, managing director for Europe at IHG Hotels and Resorts.

Medium term initiatives may end up falling into CapEx. These will take time to implement but the gains for the business will likely be bigger.

ESG as a concept has been given much more prominence in recent months because of the COP26 conference but even though this has now concluded it isn’t going away.

The new Glasgow Financial Alliance for Net Zero (GFANZ), chaired by Mark Carney, UN special envoy on climate action and finance, and former governor of the Bank of England, has gathered together more than 160 firms with $70 trillion to join forces behind a common goal: steer the global economy towards net-zero emissions and deliver the Paris Agreement goals.

Members include major asset owners and managers some of which will have hospitality interests. 

There are bigger financial incentives to invest and operate in a more financially sustainable way. The tension over the coming years will be how extensive and how quickly the industry can change.