Climate
resilience and adaptation are coming to the forefront of hotel investment
decisions.
GLOBAL REPORT -- It is undeniable that our climate is changing fast, as
evidenced by record temperature averages and more frequent and extreme weather
events. With that will come a growing financial impact on hotels, like many
other parts of our economy and society. But how can hotel asset owners and
investors prepare themselves for this changing landscape? What needs to be done
at the development stage and valuations?
It’s important to begin by understanding climate risks and the
most recognizable will be physical ones. Floods, hurricanes, rising sea levels
and coastal erosion, wildfires and extreme heat waves present direct risks
to life and property. They can result in significant repair and rebuilding costs and
impact the insurability and cost of insurance. We have already seen
this happen in recent events like hurricanes Helen and Milton, which caused
widespread flooding and wind damage across the U.S. South Atlantic region.
Physical risks can also be indirect such as those impacting
the attractiveness of destinations (beachfront, natural features and ecological
attractions), supply chains (water scarcity, droughts and weather disruptions
to the food supply and local communities) and community assets (the livelihood
of local populations who provide human resources and the cultural
attractiveness of destinations).
Beyond physical risks, there are also transition risks such
as those coming from not following the path of economic decarbonization.
Fast-changing and stricter regulations such as energy efficiency requirements
in many parts of the world may render assets obsolete. Changing consumer
preferences means poor sustainability performance can impact brand perception
and customer retention.
However, the major game-changing transition risk has been
the rise of investor scrutiny and financial disclosure requirements. The EU’s
Corporate Sustainability Reporting Directive (CSRD) and the International
Financial Reporting Standards (IFRS) S2, currently adopted in the U.K. and a
growing number of economies, mandate corporate sustainability data to be
reported in a structured and transparent way. Those standards emphasize a
“double materiality” approach in which both the financial impacts of climate
risks and the organizational activities’ impact on the climate must be assessed
and reported to investors. Poor performance in those areas may result in asset
devaluation in the future and even stranded assets.
But it’s not only risks. Following standards such as the EU
Taxonomy for Sustainable Activities opens green funding and investment
opportunities at more favorable financial terms.
Investors can commission climate risk and
adaptation studies as early as the site selection stage for new developments to
help build resilience into their new assets and at due diligence in
acquisitions to understand risks to asset value and insurance fully.
Some investors are leading the way. Anuj Kamdar, principal
at Pegasus Capital Advisors, said: “As ecotourism investors, climate resilience
isn’t just about environmental stewardship; it’s fundamental to protecting
returns. By carefully assessing climate risks and implementing robust
mitigation strategies, we can develop hotels that contribute meaningfully to
local economies and demonstrate operational resilience in the face of
increasing climate hazards. Hotels that proactively address these challenges will
emerge as the most compelling investment opportunities in our sector, offering
both financial stability and positive community impact.”
Such studies follow a structured methodology that include
reviews of climate literature, assessing climate scenarios, interviews with
local stakeholders and identification of current and upcoming hazards that
cover material and systemic impacts. Hazards are then classified in terms of
impact level, confidence of occurrence and timeframe, for prioritization.

A key step in climate risk and resilience assessments is developing an adaptation strategy, which is needed for IFRS reporting and future-proof assets. For due diligence for hotel transactions, remediating structural vulnerabilities of properties to weather events is key, not least for insurability or reducing insurance premiums.
Ricardo Moreira
A key step in climate risk and resilience assessments is
developing an adaptation strategy, which is needed for IFRS reporting and
future-proof assets. For due diligence for hotel transactions, remediating
structural vulnerabilities of properties to weather events is key, not least
for insurability or reducing insurance premiums. Ensuring the resilience of
energy, water, communication utilities and the supply chain is important.
Additionally, existing properties are particularly
susceptible to transition risks, as they are often built to outdated energy
efficiency standards. Building envelope and service improvements are often
necessary measures for renovations to comply with regulations in the EU, U.K. and
some U.S. states, for sustainability certifications and to meet portfolio
efficiency standards by major investors.
In development scenarios, individual risk mitigation
measures are proposed and incorporated early on into the design and planning of
developments. Examples include using masterplan zoning that incorporates buffer
zones for floods and wildfires, climate-adaptive architecture, resilient MEP
plants, independence or redundancy of utilities, and strengthening local supply
chains.
According to Six Senses Vice President of
Sustainability Jeffery Smith, “a growing number of our development partners are assessing
climate-related risks during feasibility and pre-design stages. A related risk
we are giving particular focus on is carbon fuel dependency, to reduce that
with as much renewable energy production capacity as possible to ensure smooth
operations well into the future.”
Adaptation and crucial carbon mitigation include energy efficiency and renewables. As a result, investment in
measures in those areas presents multiple benefits: operational cost
improvements, carbon emission reductions to meet corporate and regulatory
targets and resilience to safeguard assets.
Ultimately, adaptation helps protect the investment and the
surrounding communities and systems on which the investment depends. More than
a growing regulatory requirement, understanding and addressing risks is good
stewardship and good business.
Ricardo
Moreira, managing director and co-founder, building services
and environmental consultancy XCO2, London and Singapore
Note: The following contributed perspective was submitted through ISHC. The views and opinions expressed in this column do not necessarily reflect the opinions of Hotel Investment Today or Northstar Travel Group and its affiliated companies.