The days when hotels categorised ESG (Environmental, Social, Governance) measures as ‘feel good, but not essential’ might have to end rather quickly as the Federal Government introduces new initiatives to accelerate measurement and disclosure of sustainability in the hotel sector.
From July 1, 2024, Federal Government employees will be required to consider the environment when booking travel and the principal measurements for assessing a hotel’s commitment to ESG practices will be via their NABERS rating.
NABERS (National Australian Built Environment Rating System) is a sustainability measurement system that is used across the property sector for hotels, offices, shopping centres, apartments and other buildings. It has been broadly adopted by the Australian office sector for years, with a mandatory disclosure of a rating when a property is sold or leased.
Hotels in Australia have been slow to adopt NABERS ratings, though owning companies like Pro-invest, Salter Brothers and Dr Jerry Schwartz’s SFC Hotels have been enthusiastic adoptees, leading the industry.
The NABERS system allows comparisons of hotels across their specific category, taking into account differences in star ratings, size, climate zone and level of services offered to guests.
The Government move is part of The Net Zero in Government Operations Strategy document, published in late November. It is aimed at encouraging increased uptake of NABERS but can be seen as an early step towards establishing minimum standards for government accommodation bookings.
A recent amendment to the Commonwealth Procurement Rules has incorporated potential climate change impact in the assessment of overall ‘value for money’. This will add a sustainability element in the tender assessment that may differentiate one hotel from another when competing for government business such as accommodation contracts and conferences.
The goal is quite clear: the Federal Government is going to demand that the hotel sector helps it achieve its Net Zero ambitions, and those hotels that don’t move substantially towards implementing stricter and more transparent energy performance will lose business.
The new regime will start from 1 July 2024, when the NABERS energy rating will be displayed in the government online booking tool, and clearly, those hotels that have been proactive in gaining a NABERS rating are in the box seat to grow their government employee business.
It will be timely for hotels to have at least demonstrated a NABERS rating and some progress in enhancing ESG practices and planned sustainability improvements ahead of the 2024 RFP season.
And it is not just the Federal Government that is increasingly requiring accommodation tender documents to outline their ESG measures. Many companies – especially ASX-listed corporations – have committed to massive enhancements in their ESG compliance, and they are projecting that onto their suppliers, with hotels being an easy target.
Hotels that have traditionally targeted government conferences and events have become used to onerous requirements in documenting their ESG principles, but where rates, special incentives and other sweeteners may have previously allowed some flexibility, auditing of government compliance under the new rules will ensure a far more rigorous process.
Many global hotel groups already have well-established sustainability programs, but the Federal Government has decided that NABERS will be their benchmark. The new regime should not have come as a surprise for local hotel managers, but offshore owners may need further information from hotel operators to explain the Australian system.
Hotel owners and operators would be well advised to have a pathway to NABERS performance improvement and ensure their assets have a Capex plan that will meet the ESG ‘due dates’, and sensibly consider sustainability with Capex planning.
Understandably, some may see this as a further impost on running their business, but NABERS argues that by adopting their program, their clients have reduced their energy use by an average of 30-40% over a 10-year period, as well as driven revenue growth.
Besides energy, NABERS provides a rating from one to six stars for building efficiency across water use, waste and the indoor environment, which is not a part of the Net Zero in Government Operations Strategy but can offer further cost savings.
New-build hotels may be advantaged in achieving higher NABERS as modern design, plant and construction make it easier to implement advanced sustainability infrastructure from scratch. Hotels with major plant infrastructure nearing the end of their operational life will need to be particularly conscious of purchasing and replacing plant that can boost their sustainability rating.
Existing hotels can also introduce sustainability measures that are not capital intensive.
For instance, at the Wonil Hotel Perth, guests are asked upon check-in whether they want their rooms serviced daily. If they choose not to, the hotel can significantly reduce use of chemicals, energy and water, which can have a material impact on the hotel’s efficiencies and guest engagement.
Hotels will need to think of offering targeted incentives for guests to participate in such schemes, but given the savings that can be achieved through lower housekeeping costs and the positive impact it will have on meeting sustainability goals, the small investment is worth it.
Navigating a path towards an effective sustainability strategy is no longer an option, it is a necessity. It is recommended that owners look more carefully at Capex planning to ensure capital works planning ensures projects have the energy lens on design, specification and construction and avoid missing the opportunity to progressively improve their property’s performance.
Ross Beardsell has over three decades of experience in the hotel industry in senior management roles in operations and development. Working initially with Southern Pacific Hotels, then IHG and the Carlson Group, Ross worked in GM positions across the Asia Pacific. In 2008, he joined JLL’s Hotels & Hospitality Group, providing asset management services on behalf of hotel owners to maximise profitability and to provide strategic guidance. He has provided hotel advisory services to the owners of luxury, upscale, mid-market, new hotels, limited-service accommodation, resorts, convention hotels, and pubs – both nationally and internationally.