AI has been nowhere near this article.

Fundamental change is now occurring across the world in company sustainability compliance reporting. Right now, managers are scrambling to understand the new directive and fathom how to comply. In this article however, I propose that this is the opportunity many hospitality businesses have been seeking, a way to forge a real competitive advantage. One that adds value to the company, increases reputation and appeal, enables you to command a premium and to attract staff and build their loyalty. Responsible technology has a major role to play here.

Let’s first understand one of the triggers for the legislation that is now taking shape in Europe, has been applied in Brazil, and is rolling out in Australia. That trigger has been Greenwashing. The harm that Greenwashing has achieved is to reduce consumer confidence in all things claiming to be ‘green’. This undermines the market pull governments have been counting on to ease the transition to cleaner greener economies.

Consumer sentiment

Let’s first remember that research has shown for quite some time that consumers desire greener services and products. This has been reported by Booking.com surveys[1] of =30,000 respondents telling us that:

• 83% of survey respondents say that sustainable travel matters to them
• 57% intend to reduce energy consumption on future trips
• 71% say they want to leave the places they visit better than when they arrive

Booking.com’s surveys have been tracking this sentiment for some time reporting increasing enthusiasm, but they equally have revealed distrust and frustration. This year the report showed that while 52% of travellers are interested in learning more about why the property received a sustainability certification, this proposition of interested travellers has dropped down from 69% in 2023.

Are we shooting ourselves in the foot?

In an attempt to promote sustainable efforts at a tourist accommodation, green claims and the sincerity by which they are offered are being questioned and could erode consumer confidence. So, it may not simply be a matter of the claims, but as research shows, it is the context in which one makes the claim.

Academics found that Greenwashing negatively impacts Guest Green Trust and then affects the guest’s intention to stay in a green hotel or even pay a premium for the experience.[2] However, if the guests feel that the hotel is making an authentic green claim and provides transparent details to support it, then this significantly affects the influence of Greenwashing on Green Trust and subsequently increased Patronage Intentions, see illustration below.

A key problem, therefore, is that claims are being made without giving the public a sense of context to help them deduce if it is authentic and if the information is clear. I explain this in depth in my book: How to Create Sustainable Hospitality. Just pinning up a sign to invite guests to reuse towels or to shower for shorter periods to ‘save the planet’ are not credible if the guest can see there is no recycling bin in their room. Today all households have a recycling bin so if they can apply this basic behavioural action at home and their hotel room does not have one then guests become sceptical. This is just an example, of course.

Guests could also maybe see high levels of food waste at the buffet, or extensive exterior lights left on overnight, or over-watering of the gardens. The Green Catch is, if you want your green claims supported, then a hospitality provider needs to consider a holistic application of sustainability so the guest can genuinely see that the claim is authentic.

Now translate this scenario to the wider world. A whopping 82% of people say they would like to invest in an environmentally positive way. But half of the private pension investors don’t know where their funds are placed, leaving a third investing in oil and gas companies according to Investec. Their survey of 2,000 individuals demonstrated that it was pension fund complexities that prevented people from really understanding where their funds were going. By informing the public of their sustainable investment options there is likely to be a greater propensity for them to select investments in low-carbon environmentally positive funds.[3] This problem is the basis for why the European Commission is tackling green claims head-on. They want consumers to make green choices because they are clear and honest.

Green Claims Proposal

The European Commission’s research found that 61% of respondents state it is “difficult” to find a product that is environmentally friendly. A further 44% say they do not trust environmental claims.[4] After further investigation, the Commission found that over 50% of claims to consumers were considered false, but in reality they believe the percentage is far higher.[5] Recent research puts the figure far higher with 98% of eco-friendly products/services found to involve some sort of Greenwashing practice.[6]

The European Commission see Greenwashing as not simply telling an untruth but also fogging the case. For example, a hotel might celebrate that it has removed all plastic straws and halo this with their green service logo, but the impact of the straws is by no means the most prominent from an impact perspective – energy consumption could be. By over-indulging in the straw example, the hotel might be trying to camouflage their failure to reduce their energy consumption to somewhere near moderate. This fogging of the subject is where the legislation strikes.

To tackle this, the Commission is seeking to empower consumers to induce a Green Transition. The Green Claims Directive focuses on communications at the main point of sale prior to purchase e.g. website. It state that environmental claims must be:

• Clear
• Specific
• Avoid statement “we will become carbon neutral by 2045” – if you make such a claim, you will need a detailed plan, a detail financial disclosure of how you will finance this and the information must be independently verified.

The outcome is to ensure claims are understandable by all consumers and are supported by facts. That means there must be specifics as to how we measure, and the measurement must be valid and robust.

Claims will also be narrowed down to only those that are considered relevant by the scale of their impact. So, to go back to the plastic straws, their environmental impact is small compared to the total energy use a 200-room hotel will consume by hour. Therefore, the Green Claims Directive requires hospitality to make a claim that is:

• Relevant from its service perspective
• Focused on the areas of greatest impact – identified scientifically
• Robustly supported by proof of evidence
• Able to clearly communicate its impact so the consumer has a fair appreciation of the service you are selling
• Proven to have “excellent environmental performance”.

How does this affect countries outside the EU?

“But my hotel is not in the European Community.” Be warned. If you are marketing to the EU, but are outside the EU, you will still have to comply with the Green Claims Directive. If your website is firewall protected and restricts any display across the EU then there may be mitigating circumstances. However, Europeans travel a great deal and they represent an important market for many hospitality providers. Eliminating this market may not be feasible for you.

At a recent trade conference one experience executive said that “Australia has 2 years to comply or we will be non-competitive”.[7]

Could lead to Greenhushing

There is an alternative and that is to keep quiet and not make claims, even if you are doing your best to reduce impacts. This is called “Greenhushing”, where a company applies sustainability practices but deliberately does not disclose its progress for fear of misunderstandings, or other concerns. While the Green Claims Directive only concentrates on business to consumer communications, business to business communications is also important to consider. You may not be in a position to follow the dictum of Greenhushing if corporate clients and inbound tour operators are important customers because they must now report their performance, and that includes their supply chain.

Sustainability reporting CSRD, ESRS, ISSB

50,000 EU companies are now reporting the Corporate Sustainable Performance for 2024 and publishing the results by the first half of 2025. This will be followed by all large companies and all listed companies in EU regulated markets reporting by 2027.  Plus, no EU companies that are not legally established in the EU but have a €150m turnover in the continent, and if they have a large branch in Europe, will have to report sustainability performance. The reporting requirements are extensive for the European Sustainability Reporting Standards (ESRS) with almost 1000-line reporting items. This includes the supply chain. Already the Commission can report that SMEs are beginning to find themselves involved through the trickle down from banks and larger companies who need information to report on their value chain. Note voluntary standards are also being issued, that are simple enough to be usable by SMEs and that meet the requirements of banks and large companies. Drafts will be circulated later this year.

This means:

• Listed companies including small and medium (shortly to join) have to submit verified reports and these reporting formats are mandated by the EU.
• Investors are now able to compare one company with another because each report must be in HTML format so investors can cut and paste for comparison reasons.
• Investors can compare one company with another to determine the level of risk exposure to Climate Change and biodiversity loss.
• Companies can themselves compare their performance with competitors and sectors so they can better manage direct company strategy to ensure they are more resilient and ready to tackle the longer-term challenges of the 21^st Century.

Again, this is not an EU centric plan. The International Financial Reporting Standards (IFRS) sustainability body and the International Sustainability Standards Board (ISSB) have developed sustainability disclosure standards and have had close negotiations with the EU over its ESRS reporting so that there is harmony in the output. The ISSB impacts companies who are listed across the global financial markets. Already countries like Brazil will be moving to mandatory reporting of these standards by 2026 following the ISSB model. Australia will introduce a staggered reporting from this year until 1 July 2027.[8]

From a recent global poll of over 1,000 CEOs from 100 countries and 25 different businesses, 89% indicated that commitment to sustainability is critical for the success of their business.^[9]

The opportunity

There are of course at least 2 ways for assessing these deep and dramatic changes to business reporting. The first is to shrug and accept one has to comply. If you are a SME in a non-EU country you might choose to step out of the reporting demands. However, there is another side to the argument, not to simply comply or choose to just follow the market, but to lead and to take advantage of these chances so that you can reap the commercial rewards of being more competitive and ready for the inevitable risks arising from Climate Change and biodiversity loss.

As part of that leadership position, one will need clear robust and independently verified reporting which halos your excellent environmental performance over average players. Your corporate clients will choose you, as will inbound tours operators because they – equally – must also improve their performance. What is needed is a reliable, scientific strategic partner who can monitor and report your progress with genuine robust data and enable you to stand head and shoulders above competitors. A partner with technologies that can spot savings and pollution reduction opportunities that have been hither to invisible.

The next evolution of sustainability communication is transparent reporting of independently verified progress to consumers in real-time? Before now, no such tool existed. Watch this space as we launch ours or contact us here for pre-launch information.  

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[1] (Booking.com: Sustainable Travel 2024)

[2] Alyahia, M. et al. (2024). Greenwashing behavior in hotels industry: The role of Green Transparency and Green Authenticity.

[3] Investec, 2019.

[4] Van Ormelingen, B. (2024) Legal & Policy Officers of the European Commission

[5] Carrlere-Pradal, B. (2024)EU Green Claims Directive and related Sustainability Regulations

[6] Martinez, M et al .(2020) Fuzzy inference system to study behavior  of the green consumer facing the perception of Greenwashing

[7] Australian Chamber of Commerce @ Austrade meeting in May 2024

[8] Responsible Investor. 23 October 2023

[9] (Accenture Strategy, 2016).

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Further links of interest:

Australia publishes ISSB-inspired draft sustainability reporting standards
Australian Treasury’s mandatory climate-related financial disclosures document

GSTC 2024 Sweden – EU Green Claims Directive and related Sustainability Regulations presentation

European Financial Reporting Advisory Group – Finalization of Three EFRAG ESRS IG Documents (EFRAG IG 1 to 3)

European Commission – EU Finance Podcast on sustainability reporting