Hyatt: Environmental Sustainability in Hospitality Industry
A glimpse of how Hyatt, a leading global hotel management company, incorporates its vision for environmental sustainability into its business practice
Climate Change for Global Travel and Tourism
Global travel and tourism industry has experienced rapid growth over the past years, accounting for 9.8% of global GDP in 2016 [1]. While the sector is expected to grow 4% annually over the next decade, concerns arise regarding the impact of climate change on the future of global travel and tourism industry landscape.
Hospitality sector, in particular, is highly susceptible to changes in climate patterns and ecosystems—crucial factors when people make their travel decisions. This directly has direct economic implications on hotels’ profitability. As climate change escalates, hotels are faced by increasingly serious business threats. Rising sea levels is one of the major threats to hotel real estate assets, in particular resort hotels located near coastal area. According to UNEP, a 1-meter rise in sea level could submerge almost 60% of resort hotels in the Caribbean region [2]. Faced by pressing climate change concerns, leading global hospitality companies have come up with various operating procedures and project initiatives aimed at reducing the level of GHG emissions at hotel properties across the globe.
Ambitious Environmental Vision
Hyatt is a leading global hospitality company with more than 600 properties with especially strong footprint in the upscale and luxury hotel segments. In the past few years, the company has shifted its growth strategy from a previously capital intensive model to a more asset-light approach, similar to those of competitors, in order to diversify its cash flow streams and grow more quickly. It was not until a decade ago or so that Hyatt had begun to aggressively franchising its brands, mostly in the upscale segments, where Hyatt is not directly involved in the day-to-day operations and where operation models are less complex compared to those of luxury hotels. Majority of Hyatt’s luxury hotels are still either owned or managed by Hyatt [3].
Recognizing the extent to which climate change can adversely impact the global travel industry, Hyatt has incorporated environmental sustainability initiatives into its overall business strategy. In 2014, it announced environmental sustainability vision for 2020 for all of its hotels. The mission, which combines both short-term and long-term strategies, will focus on 3 major areas [4], [7]:
- Use Resources Thoughtfully
- Build Smart
- Innovative and Inspires
Use Resources Thoughtfully: Hyatt aims to optimize amount of resources use per guest at its hotels. In doing so, Hyatt has implemented a system to keep track of how much resources are consumed and wasted in order to adjust its purchasing decisions accordingly. In addition, Hyatt sets targets for its operation teams to reduce level of energy consumption, GHG emissions, and waste production at its hotels. For example, Hyatt targets to reduce water use per guest night by 25% from 2006 and 30% in water-stressed areas.
Over the past few years, Hyatt’s efforts to make its hotels more energy efficient have already materialized; majority of Hyatt hotels have been able to significantly reduce energy consumption, GHG emissions, and water consumption [Exhibit 1]. In addition, Hyatt aggressively pushes recycling efforts, setting 40% diversion rate global target. So far 12% of hotels has exceeded the target diversion rate.
Exhibit 1
Build Smart: In addition to optimizing energy usage at the hotel-level, Hyatt focuses in developing more environmental friendly and energy efficient hotels. From 2015 onwards, managed hotels must adhere to enhanced sustainable design guidelines for any new development and major refurbishment projects. From 2015 onwards, Hyatt’s owned full-service hotels must be certified for LEED, one of the most prominent green-building certification program. As of April 2016, 24 of Hyatt’s hotels are LEED-certified.
Innovate and Inspire: To raise more awareness around environment sustainability, Hyatt provides hotels with funding dedicated to environment sustainability projects. Furthermore, Hyatt will continue to experiment different solutions to address climate change in order to derive at the most effective solutions to address climate change. For franchised hotels, Hyatt will introduce EcoTrack, a data monitoring system that tracks hotels’ different environmental performance. Hyatt expects that by 2016, all of Hyatt-franchised hotels will be able to monitor and review their hotels’ environmental performance [5], [7]
Future Opportunities
Although Hyatt has made robust progress towards achieving its environmental sustainability vision by 2020, what else can it do?
As millennials are putting more emphasis on environmental sustainability when making lodging decisions, it seems that typical towels-and-linens reuse programs and recycling efforts are no longer sufficient [6]. Going forward, Hyatt should integrate more sustainability features and green technologies in its hotel designs.
In addition, most of the existing environmental initiatives have been focused on Hyatt owned and managed hotels. Should Hyatt push its environmental sustainability initiatives more at its franchised hotels? With hospitality industry becoming increasingly competitive, will mandating franchisees to comply with Hyatt’s environmental initiatives hinder its efforts to compete with other hospitality giants like Marriott?
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Sources:
- World Travel & Tourism Council. “Economic Impact Analysis”. November 2016. http://www.wttc.org/research/economic-research/economic-impact-analysis/
- United Nations Environment Program. “World Heritage and Tourism in a Changing Climate”. November 2016. https://wedocs.unep.org/rest/bitstreams/11317/retrieve
- Hyatt Hotels Corporation. November 2016. http://investors.hyatt.com/investor-relations/news-and-events/Presentations/2015/default.aspx
- Hyatt Hotels Corporation. November 2016. http://newsroom.hyatt.com/2014-08-28-Hyatt-Unveils-New-2020-Environmental-Sustainability-Strategy
- Ibid
- Adams, Lawrence. “Sustainable Hotels: A Futuristic Outlook”. November 2016. http://hotelexecutive.com/business_review/3819/sustainable-hotels-a-futuristic-outlook
- Hyatt Hotels Corporation. November 2016. http://thrive.hyatt.com/content/dam/Minisites/hyattthrive/2016-Images/29-2020-Vision-Graphic.pdf
If Hyatt wants to make a lasting, global impact via its sustainability efforts, then I would argue it certainly has a responsibility to push its sustainability efforts on franchised hotels. With respect to competition moving forward, investing in environmental initiatives, and marketing this intention, may help shift hotel demand toward Hyatt away from Marriott. As more and more people become aware of the importance of sustainability, customers are more likely to choose where they stay based on whether the hotel chain’s values and mission aligns with their own.
One thing that concerns me about the heavy reliance on LEED building is that the practice of simply following guidelines does not inspire, encourage, or recognize new innovations. It seems that in accomplishing the Build Smart initiative by meeting LEED expectations, Hyatt could be foregoing opportunities to push the LEED standards further, and thus fail to full embrace is Innovation and Inspire arm. While they are not in the business of establishing LEED standards, there does exist an opportunity for a large, global brand like Hyatt to pressure the construction industry to adopt modern, more cost-effective measures that can make even larger impact in the global climate change trends. Using the EcoTrack system is an awesome way to benchmark where they stand with respect to environmental impact, but I wonder if they can harness this and other tools to evaluate areas of new opportunity and growth moving forward.
On the water conservation front, is a 25% reduction enough to help mitigate Hyatt’s impact on the potential risk of a rising sea level? Can Hyatt reach 30, 40, or 50% reduction in water utilization? Perhaps setting such a high goal will bring earned press their way and help them become the leader in sustainability within the hospitality sector. While an asset-light approach will likely help improve cash flow, if Hyatt doesn’t take the lead and become a game changer in the sustainability world, they may see themselves struggling despite adapting their business model.
Great post! I completely agree with you in regards to the hotel industry needing to do more in order to minimize their negative environmental impact. However, I am curious about the impact that some of the operational initiatives have on the work force of the hotels. For instance, Starwood has an initiative in which guests get points if they cancel room cleaning. Therefore, as a result of this initiative, Starwood reduced its personnel costs. For investors this is probably a great outcome but for the local community that supplies the labor it may not be so great. So I wonder if there is a way to balance green initiatives with their potential social impact…
Interesting post! When I stay at hotels I am increasingly seeing evidence of the industry trying to use their resources more efficiently. Specifically, I’m sure everyone has seen those signs that many hotels place in the rooms encouraging guests to reuse their towels. Thinking about changing norms brings me back to our discussion in Field of behavioral economics and the concept of anchoring. The key question seems to be whether hotels can get their guests to see the norm as reuse, rather than expecting to have their towels and linens replaced daily. While I think this kind of signage is pervasive (at least in American hotels), I wonder to what degree companies in the hospitality industry are really using the best know-how of behavioral science to design their signs and other messaging. It could be an neat avenue to bring social science into the industry to drive lower costs and a more sustainable future for the industry.
Awesome post! It is encouraging that the hotel industry is graduating past its towel/linen reuse program to more serious steps. The use of resources in hotels is close to my heart, because I often wonder just how much electricity/water guests are wasting if they are on holiday and thus have fewer cares. I myself am guilty of leaving the bathroom light on- why? Just because I couldn’t be bothered to turn it off in a hotel! It’s not my house!
Super interesting to see the results that Hyatt has been able to achieve through its sustainability programs. It wasn’t entirely clear to me however, how sustainability factors into the travel habits of millennials. I assumed the biggest factors affecting hotel choice are probably price, and then loyalty to the particular hotel brand(?) Can hotels begin advertising their sustainability efforts on social media/TV so as to create more goodwill for a particular hotel brand? That being said, the hotel will probably need to be very careful not to give the customer the feeling that because their operations are more sustainable, that quality of hotel stay will be diminished in any way. What do you think?
Very interesting post. I agree that climate change will affect the hospitality industries in many ways and was curious that you highlighted rising sea levels as one of the main risks. While I agree that this may affect the hotels that are on the water, is this the main environmental risk for the full Hyatt portfolio? I am excited to see that Hyatt is implementing “targets to reduce water use per guest night by 25% from 2006 and 30% in water-stressed areas,” but would hope this is a practice they implement more broadly. As you mention in the post, certain consumers care more about the environmental impact of their hotel choice. As climate change progresses and continues to impact consumers, I hope Hyatt can continue to use innovative practices to lower costs and promote green policies for its consumer base and be a leader in this space!
Thanks for posting this! It sounds like Hyatt is making some fairly good strides towards address climate change. One of the aspects that I would love to know more about is how Hyatt is trying to influence the customer’s behavior towards sustainability. I loved your thought about towel-and-linen reuse programs to decrease excessive water and energy usage. A few other things that come to mind are packaging, quantity, and size of shampoo and conditioner bottles at Hyatt Hotels (can they develop more efficient packaging or influence the behavior of usage?); energy use from lights (implement some automatic lights, more natural light, etc.); or influence more efficient use of hot water showers. These are challenging problems because the balance of maintaining their customers while also influencing customers to behave more sustain-ably is fragile. Great article on a interesting company!
Great post! I did my analysis on another hotel, Intercontinental Hotels Group, and in the process, discovered most of the major hotel chains are taking big strides toward being environmentally friendly. Interestingly, IHG is almost entirely franchised and their initiative set targets on the franchised hotel to reduce water use and energy use per room by 10% by 2017. They rolled out a similar tool to Eco-Track to their franchised hotels and also include a list of 200 “green” initiatives they could pursue. In addition, they did the most intensive risk-assessment of water management to develop a catered plan for each franchisee. I bring this up for two reasons: 1) I certainly think Hyatt should and can roll this out to their franchisee, there is a huge financial incentive for franchisees to pursue these initiatives (energy is the third largest cost for these hotels and water usage makes up 10% of the operating expenses of a hotel) but they may lack the know-how which Hyatt can provide and 2) I do not think there is a competitive disadvantage by rolling out these initiatives because all the big players are doing this, in fact, I would go as far as to say it is a disadvantage to not be doing this at the franchisee level.
I do agree with you that there is a lot more innovation they can be pursuing. New technology on laundry and dish washing has come out that can significantly reduce water consumption. Many hotels are installing electric car chargers at their hotels to encourage eco-friendly transportation to and from their facility. I think it is important not to just check the boxes to get LEED certification, but to think outside the box. Every hotel can learn a lot by studying their competitors, because while there is a lot of innovation, it is very fragmented across the industry.
Great post Piriya! Really interesting to see how the hospitality is taking on the challenge of sustainability. Do you know if they rank their hotels based on sustainability metrics? If they did they could impose an internal equivalent of a carbon credit that incentivized hotels to become more sustainable. Perhaps that could help hasten the process.
Great article! There are many ways Hyatt can help improve sustainability. One way you mentioned is to reduce energy consumption. A sector of Dow chemical produces product that either directly or indirectly help reduce energy consumption by utilizing self generated electricity. For example, Hyatt could install solar panels on the roofs along with energy generating wind mills. In addition, certain types of insulation can help keep cool air inside in order to reduce the use of air conditioners.
Great post, Piriya! I’m enthused by what big companies like Hyatt can do in terms of advancing the green agenda. Similar to Kei’s post on fuel-cell vehicles, I think Hyatt’s larger underlying issue could be low utilization. I perceive hotels to waste a ton of resources, mainly electricity, on empty rooms that still get air conditioned. I wonder what embracing the so-called sharing-economy could do in order to reduce the need for that many hotels rooms and simply bump utilization relying on existing properties.