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The hotel industry contributes up to 1 percent of global emissions, a figure that is only expected to increase as demand continues to grow.
Sustainability & Incentives
This is not surprising for an industry with 24-hour, 365-day-a-year operations, and also given that hotels use more energy than office, retail or manufacturing premises. This places hotels as some of the world’s highest per-square-foot energy and water users.
The hotel industry has recognized this issue by joining the global effort to reach net zero. More than 500 travel companies have now signed the Glasgow Declaration on Climate Action in Tourism, which aims to halve emissions by 2030 and reach net zero by 2050.
Various drivers are shifting the hotel industry onto a path to net zero, including:
- Laws and incentives: Since the global built environment accounts for about 40 percent of global emissions, governments are passing laws and regulations and setting up incentives to bring about change in the real estate industry.
- Meeting customer demands: Guests are becoming more environmentally aware; young millennials, in particular, are increasingly seeking out sustainable hotels and paying attention to hotels’ green credentials.
- Bottom line: Sustainability initiatives can bring financial benefits to different stakeholders in the hotel industry. For example, hotels are a distinct asset where all utility savings pass directly to the balance sheet of the operators.
The hotel industry faces specific challenges in aligning the interests of all stakeholders. Often, separate companies hold the roles of developer, owner, operator and funder. Further, numerous third parties are involved in the development and operation of hotels. With so many parties involved, it is important that each party does its part to reach the common goal of net zero.
This can be achieved with the help of legal drafting to ensure that the relationships between each party in the hotel industry chain are governed by mutually agreed provisions setting out obligations and the terms of their collaboration.
Reed Smith has been involved with the Chancery Lane Project, an organization that brings together legal and industry professionals to create new, practical contractual clauses to address climate risk. Each new clause is given a child’s name to remind users that future generations are the ones most affected by climate change.
Some of the provisions that you may think of including in your company’s legal documents are set out below:
- Heads of terms: To ensure all parties are aligned on sustainability, environmental provisions can be included in the heads of terms from the start of the transaction. Doing so makes your company’s position on these issues clear to the counterparty. See Hanley’s Clause.
- Building contracts: During the construction or major refurbishment of a hotel, consider including a carbon budget in the JCT Design and Build Contract to incentivize the contractor to adopt materials that are beneficial to the environment and longevity of the project. Include liquidated damages provisions, whereby the contractor would need to pay for every ton of carbon by which the development exceeds the carbon budget agreed by the contractor and the developer. See Tristan’s Clause.
- Benchmarking: During the building contractor procurement process, introduce a mechanism to benchmark the contractor’s carbon footprint against the market. The mechanism would be triggered only if the contractor failed to meet the forecast assessment of emissions submitted as part of its tender. See Izzy’s Clause.
- Supply chain contracts: To ensure that your suppliers’ net zero aspirations align with your own climate strategy and targets, consider issuing a due diligence questionnaire to your suppliers, to gather the information that you need early in the procurement stage. See the Chancery Lane Project’s sample procurement due diligence questionnaire.
In summary, no one single approach to reducing carbon emissions in the hotel industry will be enough on its own. Each organization needs to word the provisions of its contracts in a way that best reflects its environmental goals, and many organizations are doing so, with provisions on carbon emissions becoming increasingly common in the industry. As we move closer to the net zero target dates in 2030 and 2050, such provisions will likely need to become a norm in the industry if such targets are to be met.
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