The “real” value of green certifications for hotels in Asia Pacific
The real estate industry has been singled out as one of the largest sectors for carbon emissions and is increasingly facing scrutiny to decarbonise. In its response, green building standards and certifications have emerged as a way to promote and standardize sustainable, high-performance buildings.
But what is the value of green building accreditation for hotel owners in Asia Pacific?
Based on JLL’s recent Hotel Operator Sentiment Survey, obtaining external sustainability rating was the key action point on the Operators’ agenda for 2024. The latest survey by Booking.com also shows that 65% of guests would feel better about staying in a particular accommodation if they knew it had a sustainable certification or label.
But before hastily pursuing top-notch green building accreditations, which can be time consuming and potentially costly, it is important to carefully consider value drivers of green certification for hotel owners. Will it grow revenues? Who will recognize it?
While the evidence of a direct impact on Average Daily Rate (ADR) in relation with green building certifications is limited, the advantages are becoming increasingly apparent in markets like Singapore and Australia where jurisdictions, financial institutions and private corporations are setting ESG standards. Owners and developers in such markets could directly benefit from regulatory incentives, gain access to green financing and retain corporate demand by getting their properties accredited. Nonetheless, it is crucial to acknowledge that this shift is currently limited to certain areas of APAC. For sustainability accreditations to hold meaningful value across the entire region, all stakeholders must actively align their values with this movement.
An institutional push is essential for green building certifications
In APAC, the push for sustainability accreditation is expected to come from the governments, lenders, institutions and sovereign wealth funds, similar to what we have seen in Europe. Some countries are already setting the tone and leading the way by implementing regulations and setting target years. For example, the Singapore Green Building Master Plan targets 80% of the buildings’ GFA to be green by 2030 and offers grants for building owners to retrofit to higher standards of energy efficiency. Similarly, since 2023, the Victoria state in Australia requires that all new commercial and multi-residential buildings within the City of Sydney municipality must meet the energy efficiency standards at a minimum of 5.5 NABERS energy rating. New developments must also achieve net-zero carbon in their energy use from 2026. In India, the Income Tax Act provides tax benefits to developers of LEED-certified buildings.
Greening of the financial sector to provide tangible incentives
Lending institutions are on board with Net Zero Carbon goals, which has strong implications on their financed investment portfolio (Scope 3 emissions). Industry-led and UN-convened, the Net Zero Banking Alliance (NZBA), which brings together a global group of banks representing about 40% of global banking assets, has committed to align their credit and investment portfolios to net-zero CO2 emissions by 2050 and setting mid-term targets for 20301. HSBC, part of the NZBA, announced to use EDGE certification as a as one of the criteria to assess and justify their green loan issuance. The EDGE standard is to reduce energy, water and the energy used to make building materials by at least 20 percent2.
Corporate commitment expected to urge global hotel operators to take prompt action
A growing number of multinational corporations (MNC), specifically over 929 in the Forbes 2000 list, have made their public climate pledge to decarbonize. This is up from 417 in December 2020, and 702 in June 2022. Its direct impact on the MICE (Meetings, Incentive, Conferences, Events) industry has been evident in terms of corporate RFPs which requires contesting hotels / venues to submit ESG details, including proof of third-party verified sustainability accreditation. There is acceptance of the fact that those without an internationally recognized accreditation are placed at a disadvantage, and potentially disregarded by corporates who are pushing for “greener” meetings. This discernment seems to be more pronounced in Asia Pacific with a high mix of MNC demand, such as in Singapore, more so than in highly domestic driven markets like Indonesia, Vietnam etc.
To meet the changing demands of corporate stakeholders, global operators like Marriott, Hilton, Accor, and others are prioritizing the acquisition of green building certifications, despite it being a time consuming and potentially costly endeavour. There remains a requirement for both global and regional operators to assume a more prominent role in adopting certifications and implementing green building standards. This is expected to prompt regional and local brands to view green building certifications not just as a unique selling point, but a necessity to stay competitive in the market.
Yes for green certifications… but not only green certifications
As stakeholders’ demand for sustainable travel continues to rise, green building certifications will act as a tangible indicator of ESG adoption in the APAC hospitality sector. While these certifications currently provide benefits for owners in regulated markets, it is anticipated that their benefits will become clearer across the region as governments, lenders, corporations and global hotel operators take a larger role in promoting the benefits of green building certifications.
It is also worth noting that while certifications like LEED, BREEAM, EDGE, etc. are part of the relatively standardized set of technically-oriented green building certifications associated with the office, residential and retail sectors, hotel assets relate to a wider range of certifications in addition to those mentioned. These include certifications like GSTCC, Green Key, Green Globe, GSTC, Travelife and EarthCheck, which emphasize the operational aspects of the hotel business. Given the distinct areas of focus covered by each certification, it may be necessary to consider a combination of standards, certifications, and rating programs that are most applicable and widely recognized within the specific market.
Moving beyond the immediate practical advantages, it is worth considering the significance of sustainability certifications in the context of decarbonization. The recent JLL paper presents data analysis done between the different degrees of Singapore’s BCA Green Mark-awarded offices and shows little relationship between green building certificates they hold and the actual energy performance of buildings (i.e., energy use intensity, or EUI*). This shows that decarbonization, and especially net zero carbon targets cannot always be directly attributed to building certificates themselves, but rather broader alignment factors throughout the various stages, from the planning, to the post-occupancy handover and beyond.
As with other initiatives in the green transition, the true impact of green building certifications can be enhanced with accountability and collaboration from all stakeholders. It is essential for hotel operators and owners to embrace a structured approach that enables them to realize the enhanced processes, savings, and other benefits of certifications. This requires a joint commitment where operators adopt behavioral changes and diligently track progress, while owners commit to capital expenditure plans and embrace new technologies and systems.
While green building certifications are not the sole solution to decarbonization, they represent a significant step forward. They should be considered as a part of the broader sustainability journey and should be adopted as a tool that facilitates dialogue and cooperation among various stakeholders, including owners, operators, guests, suppliers, governments, and the wider private sector. It is one of the ways stakeholders can demonstrate long-term commitment to embrace a continuously improving set of standards towards decarbonization and a vision for what sustainable hospitality real estate can aspire to be.