Discover how sustainability will help you do this and differentiate your business
Short term rental investors and larger companies are looking for opportunities in the vacation rental sector. Until recently, sustainability has often been seen as an add-on to a business. Something that is not a priority and just a “nice to have”. That view has changed. Particularly, if you are looking for investment.
The landscape for the banking world is transformed as well as for investors and regulators. ESG (Environmental, Social and Governance) policies are scrutinised alongside other potential risk factors. As a property management company, you may be looking for short term rental investors or purchasers in order to scale or as an exit strategy. If so, you will certainly need to have a credible sustainability strategy. Do be aware that over 70% of companies have abandoned acquisitions due to ESG concerns.
Why do investors use ESG data in their risk assessments?
The definition of a risk assessment is as follows:
“Risk assessment is the process of analysing potential events that may result in the loss of an asset, loan, or investment.”
Many of the risks of the modern world are connected to our changing climate as well as supply chain fragility. We are all experiencing the effects of extreme weather events with alarming frequency. Rarely a day goes by without reports of wildfires or floods somewhere in the world. Every year our planet is getting hotter and high temperature records are smashed every year. Right now India is experiencing continual days in the mid-40 degrees celsius and Europe started a heat wave as early as May this year.
This global warming is a risk that investors have to address as regulation is pushing us towards a low-carbon transition. At this year’s inaugural SCALE Green in London, Ufi Abrahim of the Energy & Environment Alliance explained the changing landscape of investing.
“Regulators aim to ‘mainstream’ climate change into every decision and every link along the investment chain. This is to facilitate a net zero and sustainable finance transition.”
Another element of environmental risk is the loss of biodiversity. Many species are extinct or on the danger list. Pollinators like bees are one of the victims of intensive farming methods and loss of habitat. Without them, our world will change dramatically and a lot of our favourite foods could disappear.
Having examined the ‘E’ of ESG, investors will also look at how a business interacts with ‘people’. This will cover the people within its own business operations as well as its supply chain. Hence, issues like DEI (Diversity, Equity and Inclusion) for its employees as well as the abuse of children within its supply chain.
Lastly, for the ‘G’ of ESG a potential investor will want to know about the management team and how they are approaching and implementing their ESG strategy. Many larger businesses now have director renumeration packages linked to ESG targets.
How do these risk factors relate to short term rental investors?
So how does this all relate to the short term rental industry?
The tourism industry employs around 330 million people worldwide. Thus, it has a massive impact but also significant opportunities to catalyse change. The vacation rental industry is a relatively young part of the sector. As such, it is still in a learning and development stage, which makes it attractive to investors looking for growth.
Undoubtedly, extreme weather events together with rising sea levels are affecting destinations all over the world. This can be devastating for vacation rental operators who could lose a whole season due to flooding or wildfires. A potential investor will look at the locations of your properties but will also consider what measures you have in place to reduce your carbon footprint.
Tourism is a people business. Direct employees, in-destination teams and partners, your suppliers and your guests. Interested short term rental investors will consider how you treat your people and the sustainable credentials of your supply chain. They will also check out how you communicate with your guests to guide them to more sustainable choices during their stay.
Another key issue for the vacation rental industry in particular is resistance from local communities. For example, in many destinations, caps on numbers of holiday rentals have been introduced. Therefore, it is important to show any short term rental investors that you have taken measures to respect local residents and have a positive impact on the economy of the destination.
Key areas to include in your ESG strategy
If you are a property management company actively seeking short term rental investors, we would like to share some tips. We recommend that you start with your own business operations before starting to influence your owners. This will enable you to reduce your carbon footprint and demonstrate that you care about your people as well as the planet.
1/ Reducing carbon emissions
A simple place to start is to look at your energy tariff as a way to reduce your carbon emissions. Your existing supplier may offer a green tariff or you could find a new supplier who offers clean energy.
A second area to consider is business travel with ways to reduce air travel and set up more efficient ways of meeting.
Once you have taken action yourself, you can then educate and guide your property owners to reduce their energy consumption. They will certainly thank you as they will reduce costs as well as their carbon footprint.
2/ Have a positive impact on local communities
Of course, this will be particularly relevant once you start to engage with your owners in each destination. However, you could start by supporting local community projects in a number of destinations where you operate. For example, if most of your properties were in a particular coastal location, you could support a local marine conservation charity.
You can help your owners by ensuring that neighbours know that the property is a vacation rental and making it easy for residents to contact you if they have any concerns.
3/ Value and protect the natural world
We know that guests appreciate the natural world and getting close to nature is one of the key motivations for travel. There are some very simple ways to protect wildlife and their habitats. Again, this applies to your own business operations as well as to your owners.
Waste reduction is one area where you can make cost savings as well as showing respect for nature. The obvious action is to ban single-use plastic in your offices and, ultimately, your properties. Fortunately, this is an action which will be viewed favourably by guests. Plastic pollution is the main factor that consumers know to be harmful to our oceans and sea life.
Another way to protect our waterways and wildlife is to switch to safer cleaning products in the office. Ultimately, this will be a good recommendation to your owners as well as offering guests eco-friendly toiletries.
4/ DEI policies for your entire team
As mentioned, short term rental investors will also be interested in your staff policies. They are likely to be looking for a fair balance of diversity as well as wage parity and treating everyone fairly. This will include your policies and procedures for your own staff as well as your in-destination teams.
Having an ESG strategy will also help you attract and retain the best talent as potential employees want to work for purpose-led businesses. This is particularly true for millennials and Gen Z, who may turn down a job if the company does not align with their own ethical values.
5/ Supply chain due diligence
When short term rental investors undertake a risk assessment of your business, they will also examine your supply chain. Your choice of suppliers will affect your ESG rating as well as impact your own carbon footprint. Their carbon emissions are part of your own total carbon footprint and fall into what is called Scope 3. These are your indirect emissions, which you do not totally control but can influence by making sustainable procurement decisions.
In the same way, investment companies have to report on their ESG data and if they invest in you, they will need to include your impacts as part of their Scope 3 reporting.
Start to develop your ESG strategy NOW to ensure that your company scores well in financial risk assessments and attracts short term rental investors
