Businesses who don’t pay adequate attention to the social element in ESG - and don’t demonstrate activity working on that element - will struggle to gain access to guests, investors and corporate clients, said experts at the launch of the Energy & Environment Alliance’s (EEA) new report titled “The 'S' in ESG for the hospitality sector”.
Experts stated that to properly address the social element, hospitality businesses need to examine the way it engages with its workforce, supply chain and customers. They add that while progress in this element will soon be driven by legislation, businesses who home in on the ‘S’ and go beyond compliance and the bare minimum stand to benefit greatly, including when it comes to ensuring guest loyalty and driving income and returns.
“People are central to the resilience of this sector and they need to be nurtured and fostered - through the different stakeholder communities that touch hospitality - in order for businesses to thrive. What is coming is the commercial imperative for the ‘S’ in ESG and the full range of ESG in relation to market access,” says Alice Strevens, associate director human rights and social impact at Mazars.
She adds: “Through the legislation that’s coming through – more strongly in Europe but influencing the direction of travel globally – we’re going to get to a point where if you are not able to demonstrate activity across all three elements and in the ‘S’, you will struggle to gain that market access. And that includes access to your guests, to your investors or to your corporate clients.”
Jacqueline Kneebone, regional director for ESG at Lore Group also adds that not properly addressing every element of ESG could result in the loss of visibility on third-party booking platforms and therefore a loss of income.
“About a year and a half ago, on booking.com, you could print a list of your sustainability essentials and you would get a green badge saying you were sustainable. But now hotels get separated into tiers; tier 1, tier 2 and tier three and you have to provide certificates and a whole lot of evidence to the platform to be put into a tier. If you’re not on Tier 3, you drop down the rankings and you effectively lose all visibility no matter how great your service is,” she warns.
But for an element with no set measurements yet, and which doesn’t get as much attention as the ‘E’, the steps which need to be taken to improve the social element can be a little unclear. However, experts say the first thing to do here is focus on the welfare of the workforce and engaging said workforce to improve that aspect.
“Employee engagement is the number one part of it, it’s the best bellwether. I don’t think you can be a successful hotel business without engaging your employees,” says Keith Griffiths, head of hotels at Pro-Invest Group.
Strevens agrees, noting that ensuring there’s a feedback loop with employees is extremely important. If employers ask employees for their opinion, they need to ensure there’s a conversation about what was done in response to their feedback.
“Find out from them both through actual data points and qualitative interviews whether your response speaks to the problems raised. Yes, it will feel more onerous because there's a second level of engagement and there's a second level of interaction that has to happen but it really is the only way to do it meaningfully,” she adds.
She also states that properly addressing the S in ESG is the foundation for recruiting more good talent, stating that the business who have a great culture will continue to get great employees whereas with those where a great culture isn’t embedded within the organisation, any strategies for good recruitment are likely to fail.
Ashley Borthwick, legal director at Womble Dickinson adds that prioritising workforce welfare is a commercial necessity and shouldn’t be seen just as a tick box exercise.
“If you have a happy workforce and have happier guests and customers, your bottom line will improve. And from an investment perspective, your business becomes more investable and more attractive to investors. So there are really sound commercial reasons for focusing on the ‘S’,” he says.
Experts also acknowledged the role of technology and AI in the sector and how these advancements could impact the social element. They noted that the introduction of AI and other technologies presents both opportunities and challenges, including the risk of losing human touch points that could identify issues such as human trafficking and modern slavery, issues which pose a high risk for the hospitality sector. They also drew attention to the fact that AI and other technologies could also have an impact on staff and staffing levels.
“People get very excited about efficiencies and bringing in this wonderful technology but there are also many others things we have to think about,” Kneebone said, adding that these risks could be properly addressed if all business stakeholders are involved, particularly in the IT department.
Griffiths agreed, noting that while there are so many ways AI as well as other forms of technology could be a positive force and improve guest and employee experience, the sector needs to remain mindful of the dangers and risks it could bring.
“We have to make sure were managing those risks,” he warned.
The experts also stated a focus on diversity, equity, and inclusion (DEI) is absolutely crucial, stressing that when examining the issue of equity, the EEA’s report found that the social element of ESG is affected by social conditions and economic trends and therefore changes over time. Hence businesses need to align their strategies accordingly.
Supply chain management is also a particularly challenging aspect of addressing the social element, with experts noting this is made even more difficult when smaller hospitality companies have to deal with bigger key suppliers who may have the balance of power weighted in their favour.
Strevens advises the key to addressing this lies in industry collaboration.
“There is a real need for the hospitality sector -when it comes to the supply chain – to come together to create leverage because without they leverage, they will not be able to talk to those big key suppliers who can make ethical choices on your behalf,” she says.
Moving forward, Strevens noted the International Sustainability Standards Board will soon begin consulting on the social aspect of IFRS standards, following the launch of IFRS standard 1 and 2, which are climate related.
“What this means is there will be an accounting standard for non-financial reporting on the ‘S’. And once that starts to come through, the front end of your annual report is going to be affected in relation to the ‘S’.
And of course, there's the booking platforms and what they require as well as the corporates and the investors. And so consolidation of those reporting requirements and understanding how you can streamline that should be an absolute priority,” she advised.
She also added that work is being done on how to develop benchmarking metrics so that hospitality companies are able to measure their performance and compared that performance with their couterparts.
What is clear is that the social element of Environmental, Social, and Governance within the hospitality sector should not be taken lightly, as increasing emphasis on the S means that businesses who don’t prioritize that element will be left behind.