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Ways to Get Through the Financial Barriers to Sustainability

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A company in the hospitality industry may want to enhance its sustainability profile because it wants to save money, target a green customer base, develop a corporate responsibility program or genuinely become a more environmentally and socially responsible business. No matter the reason, changing behaviors, operations or physical infrastructure most often requires some amount of capital investment.

Fortunately, a lot of these investments pay for themselves very quickly. Often called the low-hanging fruit, these include no-brainer improvements in areas such as energy, operations and waste efficiency as mentioned in the first few points below. But a myriad of other methods exist to help to finance larger and more in-depth projects. With a small amount of extra attention and innovation, hotels can see real returns on sustainability investment through cost savings, marketing potential and investor relations.

1.    Energy Efficiency Upgrades—Energy efficiency in standard operations is one of the easiest ways to reduce costs and make a positive environmental impact. Only a few years ago, compact fluorescent lamps (CFLs) were the energy efficiency alternative to incandescent bulbs. Now LEDs are becoming competitive due to their lower costs, expanded functionality and longer lifespan. Proper weatherization, especially for older buildings, is central to any energy efficiency program, and programmable thermostat controls, automatic sensors for lights and other technology driven products provide great returns. An energy audit is an affordable way to discern efficiency weakness and the most cost-effective solutions.

2.    Operation and Waste Cost Reduction—Outside of energy efficiency, other large line items for hospitality are operations and waste disposal costs. To combat this, hotel groups such as Sheraton are giving incentives to guests who opt out of daily room cleaning. In addition, installing items such as amenity dispensers can dramatically reduce wasted consumables in guestrooms. Recycling is also an option to make a big environmental impact, and can also be financially beneficial as recycling disposal fees are commonly less than landfill fees because of the value in recoverable items. Even items such as mattresses and refrigerators can usually be recycled with a small amount of research into local services.

3.    Calculate Expanded Payback Periods—One of the main principles driving sustainability is to implement current behaviors and activities that will ensure a viable long-term future. For business, it is often hard to look farther than five years down the road, but doing so is crucial to many good sustainability and business practices. For example, a hotel that is built to be LEED Gold certified may have a typical payback period from energy savings of five to 10 years due to increased upfront costs. However, after that period, the hotel will be enjoying average annual savings of 50 to 60 percent on energy costs. Larger projects, such as on-site renewable energy, can also provide dramatic rewards if slightly longer than traditional payback periods are considered.

4.    Performance Contracting—Performance contracting is one of the most useful financial tools for upgrading energy and water efficiency on a whole building scale. Companies that provide performance contracting offer guarantees on efficiency returns from their recommended capital upgrades. After implementing these upgrades, the utility savings from such improvements are used to pay off the cost of the upgrades. This type of contracting works well because it eliminates the financial risk of upfront costs, employs technical specialists in the upgrades and ensures full functionality of any capital improvements.

5.    Other Innovative Financing Options—Like performance contracting, a variety of other innovative financing options exist to help lower upfront capital and minimize risk for the business making environmental and efficiency improvements. An increasingly popular method for financing projects such as solar photovoltaic (PV) panels is a power purchasing agreement (PPA). In a PPA, a building owner pays just for the electricity produced from a solar array on his or her building, for example, but has no risk or liability in installing or maintaining the equipment. Other financial methods such as lease options and certificates of participation may be applicable for projects with limited initial investment.

6.    Tax Incentives, Grants, Subsidies—Local and national governments around the world recognize the need for businesses to reduce their environmental externalities, so they offer subsidies, grants and tax incentives to help implement sustainability activities. Using certified Energy Star appliances for guestroom refrigerators, for example, can have federal tax incentives. Local and state utility authorities also commonly provide breaks or even grant funding to implement energy efficiency upgrades or renewable energy projects.

7.    Public-Private Partnerships—Many institutions, local governments or nonprofit organizations develop public-private partnerships to create win-win solutions for both groups. For example, an environmental organization researching green roofs with federal money may partner with a hotel to use its roof space to install and maintain green roofs. The hotel gets the benefit of reduced heating and cooling costs, reduced rainwater runoff and enhanced aesthetics, and the organization gets the space to implement the green roof.

8.    Socially Responsible Investing—Socially responsible investing seeks to invest in environmentally and socially responsible companies. Not only may potential shareholders be asking for sustainability reports and other signs of responsibility, but some investors look solely for this type of company. In fact, a 2009 study by WealthBriefing found that 90 percent of wealth managers surveyed found that their responsible investment performed as well or better than other portfolios. Socially responsible investors can be sought out for capital, particularly for hotels that want to specialize in a green hospitality experience.

9.    Develop Marketing Potential—According to a study by InterContinental Hotels Group, many travelers, particularly in the United States and United Kingdom, “prefer hotels that are meaningfully engaged in corporate responsibility.” While greenwashing is always a concern, making measurable progress toward sustainability and environmental improvements is a sound and potentially potent form of marketability. Customers are aware now more than ever about environmental impacts and respond to a corporate awareness of sustainability and social responsibility. Although the financial impacts are less defined than energy savings, value to the bottom line in increased customer booking and loyalty can be a significant factor in continuing to implement environmental programs.

Perhaps only some of the options above apply given budget restraints and business circumstances. But using energy, operations and waste efficiency as starting points provides a fast and effective way to generate savings. When cost savings become realized through these methods, the extra capital freed up can be leveraged to amplify new and existing efficiency and sustainability projects. Once the ball is rolling, environmental progress, cost savings and customer satisfaction can continue to enhance each other through a sustainability program.

Daniel McDonell is a consultant with the GreenDen Consultancy which is dedicated to offering business analysis, reporting and marketing solutions powered by sustainability and social responsibility. GreenDen has offices in the United States, Europe, and India. McDonell is based in Boston and can be reached at daniel@thegreenden.net.

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