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ESG and Impact Investing: The Effect on Hospitality

impact investingImpact investing is a rapidly growing investment strategy and is forcing REITs and private equity firms to increase their efforts on Environmental, Social and Governance (ESG) programs. Broadly speaking, impact investing focuses on investing in companies whose services or products generate measurable, positive social or environmental impact along with financial return.

When evaluating a company, an investor may use a tool like environmental, social and governance (ESG) criteria, which Investopedia defines as “…standards for a company’s operations that socially conscious investors use to screen potential investments.” Common criteria include stewardship of nature; employee working conditions; supplier, customer and community relationships; executive pay; audits; charitable causes and donations; and shareholder rights, among others. ESG criteria help investors find companies with values that match their own.

The conventional wisdom on socially-conscious investing once assumed that taking these factors into consideration had a negative impact on financial return. But times have changed. Morningstar found that the number of sustainable investment funds in the United States alone grew 50 percent between 2017 and 2018, to 351 funds with $161 billion under management at the end of 2018. In fact, Nasdaq launched a new ESG reporting guide in March of this year to help public and private companies “…navigate the evolving standards on ESG data disclosure.”

Energy Plans Tailored to Each Client

Three of the world’s largest hotel companies have renewed programs to measure and report their ESG criteria with very aggressive goals. Hilton, Hyatt and Marriott share similar goals such as reducing water consumption, cutting food waste and increasing their reliance on renewable energy sources.

Property owners are being pushed on two sides from investors requesting data on ESG programs and brands setting aggressive goals for carbon reductions. This requires a strategic, multi-faceted, long term program and investment planning to meet these goals.

We have helped facilities in the hospitality and health care industries develop comprehensive energy management plans that measure and evaluate energy consumption, identify more sustainable alternatives and implement solutions that deliver lower carbon footprints without negative impact on building occupants or operations. What’s more, we’re experts on reaping the maximum financial benefits for your facility, leveraging all existing federal, state and local incentives for energy projects to help offset capital costs.  These projects help drive the content in an ESG program while also improving asset valuation.

There is no one single solution that can provide significant carbon footprint reductions and is cost effective in every market. We help craft portfolio-specific plans for our clients based on varying rates, utility incentives, code requirements and local legislation.

For one national hotel REIT in 2018, we delivered a 9.9% reduction in the carbon footprint with over $700K in recurring annual energy savings and a 2.2 year payback.

These incremental and investable upgrades reduced the hotel’s annual kWh usage by nearly 1 million and delivered an immediate $142,500 in annual savings.

Another of our clients, Atria, has been implementing a national program helping to drive results for Ventas, Inc. Last year, the National Association of Real Estate Investment Trusts (Nareit) awarded Ventas its coveted Leader in the Light Award for its “demonstrated superior and sustained sustainability practices,” in the category of health care.

The tipping point has passed—impact investing that seeks to benefit society and the environment while still providing a financial return has become the new norm. Your facility can join this future, attracting customers and investors who are taking sustainability more seriously with each passing year. We can help you get there. Check out our case studies to see how we’ve helped companies just like yours.