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European hotel sector: Sustainability is a competitive necessity

October 4, 2024
Graeme McCormack
Head of Fund Management – Hotel & Leisure Division
Hugo Steen
Head of Investments – Hotel & Leisure Division
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Once a competitive advantage, sustainability is now imperative in the European hotel sector. Investors and operators both have responsibilities to be good stewards of the environment and of the communities in which they operate. In many ways, financial performance depends on sustainability. A strong sustainability strategy enables stakeholders to identify opportunities and manage risks related to environmental, social, and governance (ESG) factors—as well as drive performance to create long-term value.

The shift from sustainability as competitive advantage to sustainability as competitive necessity is driven by several factors:

  • Awareness of climate change and its human impacts is now ubiquitous, and many people have experienced those impacts firsthand. As a result, travellers are more likely to be eco-conscious, making hotel selections with sustainability considerations in mind, and employees are more likely to want to work at hotels that prioritise their health and well-being.
  • Inflation put significant added pressure on operators to reduce costs and increase efficiency.
  • Increasingly stringent environmental regulations, often on capital lenders, mean fewer potential buyers and forced price discounts for non-compliant properties, which strengthen the financial case for sustainability as a competitive necessity.

Together, these factors have made sustainability a competitive necessity in the European hotel sector. In this paper, we explore why sustainability matters for hotel investors and how to think about sustainability in property selection, capital improvement, operating structure, and operations.

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