Travel, tourism businesses must embrace ESG for new opportunities

Giovanni Angelini says the Greater Bay Area's hospitality sector is set for a sustainability revival to stay competitive and profitable.

It's time for change and opportunity in the hospitality-and-tourism sector, especially in Hong Kong, where the one-time pillar industry is poised for a sustainable revival after the "perfect storm" of transformation and uncertainty in recent years.

It has been proven that companies that courageously pursue strong growth and profitability while improving their environmental, social, governance (ESG) performance will deliver superior returns in brand recognition and value, with a happier labor force, better business, lower costs, and higher profitability. The Hong Kong Special Administrative Region is in a leading position to embrace ESG in tourism in the Guangdong-Hong Kong-Macao Greater Bay Area.

The evolution of ESG, from usefulness to necessity, is a transformation that has engulfed all enterprises, including those in travel and tourism. The hospitality sector, though previously lagging in ESG, is witnessing rapid transformation. Greater demand for clarity on organizations' ESG strategies from customers, investors, insurers, and capital providers clearly indicates the need for transparency.

The growing popularity of responsible investment and sustainable finance, coupled with a rise in conscious consumerism, has put much pressure on corporations in prioritizing transparency when measuring corporate social responsibility, as well as ESG.

Studies show that roughly 70 percent of institutional investors will likely avoid companies with poor ESG and sustainability performance. Estimates suggest that nearly half of business travelers, especially those attending MICE (meetings, incentives, conferences and exhibitions), prefer to work with ESG-committed organizations.

Consumers are increasingly aligning their choices with their values, and companies that fail to comply risk losing out on a significant market segment.

Undoubtedly, travel and tourism contribute significantly to greenhouse gas emissions. However, while many organizations, especially those in Hong Kong's transforming tourist industry, recognize the importance of ESG, its priority lags behind short-term profitability. The industry could do with less "lip service" and more concrete action regarding sustainability and sustainable business.

The increasing pressure on addressing ESG issues isn't just a matter of reputation. It has a tangible impact on a company's performance and legal compliance. Ultimately, an effective ESG strategy can be a major differentiator, providing a clear competitive edge.

It's time for travel and tourism business owners, leaders, and operators to review their strategies and rethink their entire process - from product to administration, finance to sustainability - and adjust accordingly to match shifting consumer preferences, digital transformation, and accelerated global trends.

There has never been a bigger wake-up call for the industry, and we can't go back to how business was conducted in the past. In today's rapidly changing and uncertain business environment, adaptability, agility, smart technology, and sustainability are crucial for success.

Creating value for all stakeholders, not just shareholders, remains the key objective. The aim is to create a better future for all involved without compromising the ability and prospects of future generations. To do so, we must ensure that short-term profits don't become long-term liabilities.

Naturally, organizations prioritize business results and profitability, but the overall image and positioning are just as important for the medium and long term. When it comes to the "people-planet-profit process", one cannot be achieved without the other.

It's a fast-changing industry, and company owners and leaders must evolve to embrace the many new business dynamics, including a new generation of attitudes and expectations from both the labor force and consumers. No business will automatically grow year after year. A sustainable vision, strategy, road map, and commitment are pivotal.

Additionally, integrity, honesty, accountability, respect, and equal opportunities should be the core values guiding ownership, leadership, and employee behavior. An organization must fully understand the multiple ways that ESG factors can create value. It's also important to regularly acknowledge how ESG is measured. Creating value should be the core message of every leader.

Among the many benefits, ESG can create value in five critical areas. First, for top-line growth, a strong culture in ESG helps companies to tap new markets, expand existing ones, and drive consumer preferences. Second, employee productivity helps enterprises to attract and retain quality employees, enhance motivation, instill a sense of purpose and increase productivity. Third, to reduce costs, executing ESG effectively can help combat rising operating expenses, such as those involving supplies and raw materials, and the true cost of energy, water, wastage, and carbon emissions. Reducing regulatory and legal intervention enables companies to achieve greater strategic freedom, ease regulatory pressure, and gain government support. Last but not least, investment and asset optimization help to attract financial support, partners, and investors, and enhance investment returns by better allocating capital for the long term and achieving higher valuation.

Owners and leaders must work hard to analyze what matters most for their companies and where the greatest potential exists. There's evidence that a better ESG score translates into higher profitability for companies in terms of increased customer loyalty and revenue, lower operating and labor costs, as well as lower capital costs, as the risks that affect business are reduced. All these will reflect on the long-term image, position, and value of a brand or company.

For effective ESG and sustainability efforts, a company's key performance indicators need to go beyond just measurements. They should focus on measurable environmental targets, with well-defined assessment, rating and reward systems, and further drive efficient practices and successful implementation.

Simply put, companies can't save what they don't measure, and if they can't measure, they can't improve.

The views do not necessarily reflect those of China Daily.