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Tourism is a significant driver for most Latin American and Caribbean economies. When the pandemic hit in 2020, tourism-related GDP dropped by $52.8 billion in Latin America and by $26.4 billion in the Caribbean – a devastating impact. Now with COVID-19 receding, tourist revenues are rebounding. While increased tourism is generally a positive economic force, it gives rise to unintended environmental problems in areas that suffer from poor management, unplanned urban development and a lack of resources. Hotel owners, lenders and brands realize that long-term, unfettered growth in tourism is unsustainable and ultimately will lead to substantial losses for local economies and outside investors. Players in the hotel space are therefore seeking to implement both tested and innovative green solutions to meet that challenge, resulting in a good market strategy for the industry.
Sustainability & Incentives
More than ever, tourists are looking for safety in travel. COVID-19 caused people to consider more carefully, and maybe even for the first time, potential health and environmental risks. They want assurances about sustainability in the design and operation of their hospitality destination, as well as the wider commitment of owners and brands to those concerns. They are asking not only whether a particular hotel will be safe and contribute to health and wellbeing, but what the longer-term environmental consequences are of staying there. They ask what impact their travel has on the ecosystem and on its preservation for future generations. Answers to these questions can be found on the internet, informing customers’ decisions with hard data about environmental impacts and, perhaps more importantly, the environmental, social and corporate governance (ESG) efforts specific hotels, brands and even lenders are adopting.
More than just a marketing ploy, sustainable practices, implemented correctly, lead to higher profits. Programs for recycling, waste reduction and energy efficiency lower an asset’s carbon footprint and reduce utility costs. Studies show that sustainable construction is at least 20 percent more resource efficient. Another advantage of being eco-friendly is green validation through governmental and quasi-governmental certification programs that increase brand value. Valuable governmental programs exist to incentivize green hotels, most often in the form of tax credits and waivers. For instance, Argentina, Brazil, Chile, Colombia, Ecuador, Peru and Uruguay offer a wide variety of direct and indirect tax incentives to investors in projects that source energy from renewable sources. Similarly, the International Finance Corporation, a World Bank member lending to the private sector, encourages sustainable development by favoring eco-friendly projects. The lender has financed $5.4 billion of green development, with more than $1 billion in hospitality alone.
Increasingly, also, we are seeing programs that punish owners (and in some cases brands) that do not implement specified eco-friendly practices. Brazil’s National Solid Waste Policy, for example, imposes maximum fines of BRL 10 million to BRL 50 million ($1.9 million to $9.5 million) for failure to comply with waste disposal guidelines. In another example, Uruguay’s Environmental Impact Assessment Regulation provides for rejection and revocation of project licenses for failure to complete environmental impact studies and comply with recommendations.
Whether in reaction to the carrot of increased profits, or to the stick of potential fines for noncompliance, a significant number of investors are already focusing on green projects and initiatives. BlackRock Fund Advisors, a major shareholder in Marriott, Hyatt and Hilton, announced in January 2020 that it would put sustainability at the forefront of its investment decisions. In September 2022, Hyatt announced strategic brand expansion in Latin America and the Caribbean, with a strong development pipeline of more than 20 luxury and lifestyle hotels and resort openings through 2024. Another leading global hotel chain has said that it will double its brand presence in these same markets in three to four years. The trend is for sustainable tourism based on local, eco-friendly development, which results in profitable investment for all.