• Green lending gains traction

Hotel groups are waking up to greater carbon reduction opportunities than just doing away with individual shampoo bottles. A range of new initiatives, tied to reducing energy use, are extending all the way into funding.
The sector has seen a number of firsts during the last year, and seems set for substantial growth. With a climate emergency declared, there is a greater corporate and consumer desire for action to reduce carbon emissions. Combined with that, the costs of everything from solar energy components to electric vehicles are coming down, creating a more compelling investment argument for change.
“The hospitality sector is globally paying greater attention to green loans as well as to green funding, including green bonds, in general,” said Charlotte Bocquet, Executive Director Global Lodging Group at Credit Agricole. “This can cover various matters: from financing green buildings – developments or investments – to ESG linked loans.”
French businesses have the lead in green finance. French hospitality investor Covivio launched its first EUR500m green bond, in 2016 and launched a second tranche this year, issuing EUR500m of new bonds with a 1.125% coupon and 2031 maturity. The company has put sustainable development and innovation at the heart of its business, setting public targets for a reduction in greenhouse gas emissions from its buildings.
Earlier this year, HSBC signed off its first Green Loan, with a GBP175m commitment to support the development of Edwardian Hotels’ The Londoner. The new build property will need to meet BREEAM “excellent” rankings, and includes a number of innovations including connections to a district heating system, to a new surface treatment to reduce heat loss from the hotel’s swimming pool.
HSBC’s head of sustainable finance, Rob King commented when the loan was announced: “Our offering allows our customers to showcase their green credentials to stakeholders by demonstrating that a portion of their funding is ring-fenced for genuine environmental and sustainability activities.”
Sirol added: “Credit Agricole CIB recently closed a green financing for The Student Hotel to finance two of their new projects in France. The funding is the first of its kind in Europe, and combines the characteristics of a green loan with a sustainability-linked loan.”
In October, a refinancing by US owner Host Hotels included USD650m of green bonds – which the company declared a first in the lodging sector in the US. “We are proud of our green bond issuance and remain deeply committed to our sustainability programme,” said CFO Michael Bluhm. With its green ranking, the 10 year issue was able to bear a lower coupon of 3 ⅜%, enabling the group to cut its cost of debt to the lowest in Host’s history. Host’s efforts have been recognised with accreditation from the Dow Jones Sustainability Index, and a five star rating from international monitoring body GRESB.
Isabelle Jourdanne Sirol, who heads structured finance for the real estate and hotel group at Credit Agricole, told Hotel Analyst: “This is still a niche area, but a very promising one, with lots of layers. There is a growing interest which is fostered – beside the owner/operator’s willingness – by the interest of investors, of banks and of the market in general.”
In March 2019, a working group put together by the Loan Market Association, the Loan Syndications and Trading Association and the Asia Pacific Loan Market Association, launched their Sustainability Linked Loan Principles – a move designed to clarify and harmonise sustainable lending.
The ambitious global project aims to provide clarity for lenders and borrowers, around four points: alignment with a borrower’s CSR, measuring against targets, reporting and review. Lee Shaiman, Executive Director of the LSTA, commented: “Investors are increasingly concerned with the impact of their investment decisions on the environment, sustainability linked loans offer a useful means of directly incentivizing borrowers to improve their sustainability profiles.”
“It’s a priority for us,” said Huw Zachariah, deputy head of CRE hotels at HSBC told Hotel Analyst. “Green loans are much more to the forefront now.” He noted that most capex projects on existing properties today will include energy efficiency upgrades. And, for those investing in low carbon hotels,  “over time, I suspect that buildings with a strong BREEAM rating will hold their value better.”
At Barclays, Tim Helliwell, head of hotel finance, says their emphasis is “more around sustainability” as this gives a broader, more holistic approach to carbon reduction initiatives. “It’s a market that’s expanded over the last year to 18 months.” Many corporate loans are now being linked with a third party that provides monitoring, to ensure promised hurdles are met. “Even in the bond market, there are pricing grids linked to sustainable KPIs.” He said borrowers have quickly become aware of the need to ensure a broad-based approach, so they cannot be accused of “greenwash” – signing up for an apparently green product, when their approach in other areas of the business is not aligned. Barclays has already signed off on several hotel sector loans that meet sustainability standards.
Among the operators and brands, Accor is arguably the lead major hotel group, building sustainability into its reporting. In 2016, the group committed publicly to a range of initiatives, so that by 2020 it would reduce food waste by 30%, commit to low carbon buildings and refurbishments for its leased properties, and create at least 1,000 vegetable gardens at its hotels.
In 2018, Credit Agricole agreed a green mortgage for Accor, to finance its purchase of its Paris head office. The EUR300m loan has an eight year term, at 1.8%. The Sequana Tower building has an “excellent” rating under HQE certification.

HA Perspective [by Chris Bown]: For so many years, the hotel industry was in denial – that tent card in the bathroom, asking you to leave unused towels on the rail, was its default environmental initiative.
But we all knew that wasn’t enough, and this year has been the year of renewed vigour towards more sustainable efforts, all round. So the brands have jumped to ban little plastic shampoo bottles, while the hotel builders are working to the standards of sustainable finance. Even my local Copthorne hotel no longer serves yogurt in individual plastic pots.
So far, so good. But there needs to be massive acceleration in the direction of travel, if the sector is to square the circle of benefiting from increasing global travel, while reducing its overall carbon footprint. And simply buying carbon credits, or electricity from wind farms, won’t cut it.
Turning specifically to real estate, building to BREEAM excellent standards won’t cut it, either. Until sustainability means every hotel generates its own electricity off its roof, uses heat pumps and recovers heat from its exhaust air – all completely doable at costs which generate medium term operational savings – then hotel investors aren’t really trying.
The industry also needs to bang heads together, so that landlord, opco and brand all work together on these issues. For too long, sustainability has been the other guy’s job. The lead shown by companies such as Accor, Host and Covivio, in monitoring and reporting their carbon reductions year on year, is to be congratulated – and ought to soon be the norm.

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