Hospitality investment conversations are increasingly centred around environmental, social, and governance (ESG) – but what does best practice look like?
Pygmalion Capital Advisers acquired nine hotels in Spain in 2018 and launched a €6.1 million decarbonisation programme to make the buildings more energy efficient and shift them to renewables. This involved installing heat pumps, a solar electric system, and establishing energy consumption monitoring.
ESG that impacts the bottom line
The properties’ energy performance certificates (EPCs) have already been upgraded, and the portfolio is expected to see a 36 per cent reduction in carbon emissions and a 26 per cent reduction in utility costs. “For the months that we have been monitoring, we are on our way to get there,” says Ariadna Planella, portfolio associate at Pygmalion.
The anticipated return on investment (ROI) is 11 per cent, and Pygmalion has applied for subsidies which are expected to cover around €1.7 million of the total capex, increasing ROI to 15 per cent.
“We have seen that there is a return on investment, it’s clear,” says Planella. “Not all the ESG actions or initiatives have an impact on the value, however, we can prove that the energy efficiency is going to the bottom line, this is going to the projections in the future, so we have seen the value of the portfolio increase thanks to our greater NOI [net operating income].”
Pygmalion is seeking a buyer as of last year, and Planella says that the portfolio is expected to attract a wider pool of investors due to the ESG standards and up-to-date certifications. “As asset managers, we expect to apply most of these initiatives to other portfolios that we currently manage,” she adds.
Low carbon and luxury ‘not a contradiction’
Meanwhile, IHG Hotels & Resorts sought to pursue a strategy in line with its Low Carbon Pioneers Initiative when it opened the 127-bedroom Kimpton BEM Budapest last year.
Solar panels were installed, the kitchen switched to electric, water pumps and heaters were combined to reduce energy consumption, most furniture was made from recycled materials, and a smart cooling and heating system was installed to reduce energy use in guest rooms. Smaller changes included printing wooden cubes with QR codes instead of menus, irons were replaced with hand steamers, and in-room pens hold seeds guests can plant after they leave.
“There are a lot of small things you can do that are not part of a big programme, but if you look at what travellers are doing, you find ways to save energy,” says Mario Maxeiner, managing director of Northern Europe for IHG Hotels & Resorts.
The launch wasn’t without challenges – the heritage building, he says, added “an extra layer of complexity on the conversations”. However, rather than an obstacle, its luxury positioning guided an approach that combined conservation with luxury experience.
“You might think there is a contradiction that exists between a low carbon footprint and luxury experiences in hotels, but that’s not the case,” explains Maxeiner.
A united front
Buy-in onsite is then a key driver of operational ESG success. “Technology supports it – but culture needs to support it as well,” says Maxeiner – embedding ESG into the culture means everyone is aware of the goals and their role in that journey.
“It all stands and falls on the engagement of the general manager and the team,” he says. “It’s the same thing if you have a strategy in the business – it only works if it’s part of the culture and the process every day.”
However, Maxeiner also emphasises the critical importance of impact monitoring: “Only what gets measured gets done... you need to measure and compare how you are doing against others.”
Pygmalion’s tenant, meanwhile, agreed to share information such as utility usage. “We tried to be more aligned and make synergies between what they were doing and what we wanted to do, so at the end the output was more valuable initiatives that make sense, not just a checklist,” says Planella.
The importance of ESG
The reasons for hotel investors to prioritise ESG are numerous. Maxeiner points out that many global companies have their own carbon reduction targets, which will inform the hotels included in their corporate travel programmes. He stresses that properties need to be able to provide externally verified evidence of reducing their emissions for inclusion.
He adds that, in the future, a lack of sustainability measures will affect property valuations: “There will be some investors that will simply not buy it if you cannot prove that.”
All those quoted in this article appeared on stage at IHIF EMEA, held in Berlin, Germany, between 31 March – 2 April 2025, in a session called: Make it sustainable: Spotlight on ESG best practice.