• Will Hawkley, Author |
4 min read

Understandably both the tourism sector and hotel industry are focused upon the short-term recovery from the pandemic. But there are important lessons to learn in relation to climate risk.

COVID-19 has highlighted the reality of ‘grey rhino’ events - a highly probable, high impact, yet neglected event. These systemic risks must be incorporated into the strategic risk planning of leisure and tourism companies. At the same time, the mandating of the Task Force on Climate-related Financial Disclosures framework (the TCFD) in the UK and several other jurisdictions provides the framework for companies to take action and ensure their long-term resilience to climate change - by adapting to both the risks and opportunities.

The impacts of climate change on a hotel business can be nuanced but there are three major areas of risk for leaders in the hotel business to consider:

  1. The low carbon transition: The need for a material reduction in transport emissions necessitating changed business and leisure travel patterns
  2. The conscious consumer: The changing demands of consumers as they become increasingly conscious of the impact of their buying patterns
  3. The increase in physical events: the impact of increased physical weather events causing damage to infrastructure or business interruption issues. 

Miles from 1.5C

In order to limit global warming to Paris-aligned targets (an international treaty on climate change), there needs to be 60 percent reduction in transport emissions by 2050. Decarbonisation of the transport network will change how people move around, likely impacting where they travel to and hotels they visit.

Changing transport trends will evolve on a regional basis, as public perceptions and governmental policy drives change. Scandinavian countries such as Sweden are already seeing reduced travel trends, with ‘flight shaming’ driving a 4 percent international and 9 percent domestic reduction in travel during 2019. 

Hotel groups need to be agile and have a strategic response to travellers’ changing travel patterns. To cater to the changing needs of consumers, hotels need to understand their customers more than ever before to allow them to meet these needs. To reduce the potential impact on growth, the hotel sector should assess the strategic options domestically and how they could capture mass market tourism on home soil. They should also develop strategies to attract more local customers to their properties especially if people continue to work from home post the pandemic. Building trusted relationships with local communities will be important in achieving this.

Rise of the conscious consumer

Guests are not only increasingly concerned about the carbon impacts of their mode of transport, but also the environmental impact of their stay.

The sector needs to respond to the growing customer base of the ‘green traveller’ by diversifying their range of offerings to meet the needs of these guests. In the business travel sector, there is an increasing appetite from guests, whose companies have pledged to Science Based Targets, to review their supply chain and business travel policy in order to reduce their scope 3 emissions.

Over 70 percent of the world’s leading businesses have already set decarbonisation targets and strategies so the B2B sector is likely to use green travel to demonstrate reductions in their own environmental impacts. 

However, this trend is not isolated to the B2B sector. There are an increasing number of leisure guests who would factor environmental performance into their choice on where they stay.

This can be perceived as a risk, but for hotels that can take decisive action and demonstrate green credentials, this is an opportunity. As more hotel groups commit to science-based targets and meeting Net Zero, businesses should consider how they can position themselves to potentially capture future upside.

Perils of a Global Portfolio

The physical impacts of climate change can present a range of challenges to hoteliers and their ability to operate:

  • Acute physical perils such as flooding, wildfires, hurricanes.  These specific events that could cause damage to their assets and business interruption.
  • Chronic physical perils such as drought, water stress and extreme temperatures. These longer-term shifts in weather patterns often result in increased operational costs for hotel owners or could even remove the ability to operate at all.

Hotel groups need to be cognisant of which regions they are investing in and related exposure to physical risk as part of their long-term growth strategy. To protect their business against physical perils, hotel groups should review their portfolio mix across the globe and consider timing of divestment or acquisitions to ensure they are not exposed financially to these physical risks. 

Hotels groups need to understand their climate risks and opportunities and how they are interrelated. A coherent climate strategy should manage climate risks and opportunities whilst driving a Net Zero strategy in tandem. Given the large lead time required to impact pipeline and retrofit buildings, and the ever-increasing manifestation of climate-related risks, the time for hotel groups to act is now.  

For further insights on climate risk, watch our ‘Delivering on climate risk – quantifying your exposure’ event on-demand.