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02/05/2009

Green Hospitality Takes Global Hold: Part 3

Over the last decade, the movement towards ecologically sound tourism has swept across the globe; and the practices being implemented are as diverse as the different geographies. In part three its global green studyErnst & Young explores some of the major trends and programs initiated Caribbean and European lodging sector.

Caribbean
Eco-tourism in the Caribbean has existed for over 30 years, but environmentalists' decrees for mainstream sustainable tourism have had minimal impact on the overall region due to the lack of perceived investment returns and incentives associated with sustainable development and operations. As natural resources become scarce and as global warming causes climate change, the Caribbean is seeing a shift towards more ecofriendly practices driven by economic benefits and by the need to preserve the fragile ecosystem on which its tourism is so dependent.

The concept of "green hotels" in the Caribbean is thought to have begun with Stanley Selengut, in 1976, with the opening of Maho Bay Camp in St. John. Credited by many to have coined the phrase "ecotourism" (the idea that tourism revenue can promote conservation), Selengut developed an ecologically friendly 18-key tent resort that appealed to travelers willing to shed first-world conveniences for a more rustic experience. Maho Bay Camp utilizes low-flush composting toilets, spring action faucets and showers, rain water catchments and solar-heated water to conserve natural resources and minimize the footprint that the hotel and visitors leave on the island. The resort's Trash to Treasures Art Center recycles the resort's waste materials into craft items.

Although other luxury ecotourism resorts modeled from Maho Bay Camp, such as 11-key Tiamo Resort in the Bahamas, 64-key Spice Island in Grenada, and 7-key Exotica Cottages in Dominica have continued to be successful within a niche market, the trend has not received significant attention from investors due to challenges associated with structuring finance due to the small scale of these operations as financing dollars tend to follow the more land-intensive mixed-use resorts that produce higher levels of profit.

Sustainability found in all-inclusive resorts
While ecotourism resort development remains low profile, sustainability has become a buzz word as more islands try to preserve their natural beauty. In 1997, CAST (Caribbean Alliance for Sustainable Tourism) was formed by members of the Association of Hotels of the Caribbean, in order to develop sustainable tourism throughout the region. CAST has successfully promoted the global initiative of Green Globe certification; as a region, the Caribbean leads the world in the number of certified hotels at 57 properties.

Hotels receive "Green Globe" certification through addressing major environmental issues in key areas including: greenhouse emissions, energy efficiency, management of freshwater resources, ecosystem conservation, and waste water and solid waste management. Of the 57 resorts that have achieved Green Globe certification, an overwhelming majority are all-inclusive brands. The operating structure of an all-inclusive resort, where profit margin is based on the hotel's ability to keep costs low and volume high, should support the adoption of sustainable policies, such as "implementing programs to minimize use of energy, water and nonrenewable resources," in order to reduce and control costs.

As hoteliers see profit margins shrinking and costs rising, market representatives believe a quickened pace towards sustainability will become imperative to remain profitable. Due to its resource constraints, the Caribbean has long dealt with high operating costs. Market observations and research suggests that energy can be up to 50% higher at Caribbean properties relative to comparable US hotels. In addition, hoteliers have noted an increasing interest among affluent travelers for a greener experience. While government initiatives may be limited in the short term as encouraging development is still high on political agendas, the long term is anticipated to bring a renewed interest in sustainable development.

Europe
Environmental concerns have been at the forefront of the political agenda throughout the European Union (EU) since the Kyoto agreement was first signed in 1997. The lifestyle hotel sector was one of the first to embrace the green agenda, viewing it as an opportunity to differentiate itself; modern "eco responsible" hotels were developed to highlight the perceived novelty of the green revolution.

However, in recent years, other sectors of the hotel market have begun to adopt the green agenda. As the green movement becomes more mainstream, operators are realizing the potential purchasing power of this sector and are eager to appeal to this market. For large brands, it is now considered essential to protect against adverse environmental press, as the risk of damage to brand reputation is high.

Cost savings
The first example of an environmentally friendly development with a cost-savings benefit was the appearance of cards in hotel rooms, requesting that guests reuse their towels. This was an "easy win" for the hotels as cost savings were made for virtually zero outlay. Given the anticipated slowing growth of the hospitality sector, the focus on cost savings has again come to the forefront. In a world of increasing oil prices and rising utility costs, "going green" makes economic sense. Hilton Hotels across Europe have reportedly saved $9m since the introduction of a scheme in 2006 to reduce energy and water consumption, along with significantly reducing their CO2 emissions per guest.

Many EU governments have introduced enhanced capital allowances programs to encourage businesses to follow eco-friendly capital expenditure policies, which for hotel operators may include pipe-work insulation and low energy refrigeration equipment.

In addition, some countries are mandating that new buildings be constructed to be energy efficient. For example, the German legislature requires the use of renewable energy in the building sector from 2009 forward, and increased the required level of energy efficiency of buildings. The German Renewable Energy Heating Law requires owners of newly constructed buildings to obtain part of the heating requirements from renewable energy sources. This can include geothermal, environmental energy, solar energy and biomass energy.

While the measures outlined above are positive steps towards the achievement of environmental goals, it is by changing the design of hotels that lasting environmental targets can be attained. By using renewable local materials in the construction of new hotels, investing in solar panels to heat water and installing energy-efficient LED lighting, a hotel operator is contributing to environmentally friendly and sustainable design.

Barriers to progress and outlook
It is often more economical to design a green hotel, rather than to modernize an existing structure. There are many landmark hotels in Europe which are housed in traditional buildings with spacious rooms and large windows. This type of hotel is typically inefficient to heat, to cool, and critically, to modernize. Regulatory planning restrictions, the structure of the buildings, the ambience of the hotel, and the tastes of the clientele it hopes to attract, all pose restrictions to an environmental approach.
It is anticipated that EU governments will, as well as offering incentives for green buildings, start to penalize those buildings with large "carbon footprints." Hotel operators will have to assess the financial costs and rewards of operating older hotels which may have strong demand for guests but that will soon also have higher costs.

In some regions of Europe, primarily emerging and hotel markets in their infancy in non-EU countries, sustainability is not yet prioritized. For example, the Russian hotel market, undersupplied as it is, has not placed green construction on top of its hotel development agenda and is unlikely to do so in the foreseeable future. It is not that the local developers are not environmentally conscious, but in a country with a notable shortage of quality lodging supply, developers and owners are busy engaging hotel chains to operate their properties, securing favorable loan terms and optimizing construction budgets. It is thought that building green is more expensive than traditional methods, and there are no incentives associated with costs for sustainable design that could in theory support feasibility. As such markets mature, building sustainability into hotel projects, both at the construction and operation stages, may gradually become a common practice.

The focus on green issues is not just a passing phase and is anticipated to continue for the long term. The difficult economic times facing Europe at present may actually help to drive the green agenda. With operators competing for a static level of demand, an environmentally friendly program can be used as a differentiating factor, and with governments offering tax incentives for green investment, more sustainable projects become economically viable.

In part four of this study, Ernst & Young explores the green hospitality trends across Oceania and Latin America.