Impact Investing in the Hospitality Sector
This profile covers:
Hotels and tourist facilities
Leisure facilities
Catering and hospitality services
Business activities that fall within the scope of this sector profile include:
Provision and service of food and beverages through restaurants, temporary or permanent fast food outlets, cafes, bars and clubs, catering businesses, sporting or recreational venues.
Provision of leisure and business accommodation services through urban or rural hotel-type facilities (i.e. excluding accommodation provided in educational or work facilities).
Provision of leisure services (i.e. recreational activities and services).
Key environmental and social aspects
Management commitment, capacity and track record (CCTR)
Companies need management’s commitment and sufficient capacity to ensure that the necessary resources are available for sound E&S management. Refer to CDC Guidance: Assessing Companies’ Commitment, Capacity and Track Record.
Environmental and social management system (ESMS)
Companies should develop and implement an ESMS commensurate with the level of risks and impacts associated with its activities. For further advice refer to CDC E&S Briefing Note: Environmental and Social Management Systems (company-level).
Labour and working conditions
Risks for the business
Companies may face prosecution or fines (or have their licences removed) if they fail to comply with labour laws and regulations.
Financial, reputational and legal risks can result from poor staff morale or attitudes, industrial action, high staff turnover, theft and poor employee health (e.g. due to long working hours and working late at night).
High turnover of staff arising from poor labour standards and working conditions can lead to increased recruitment and training costs.
Quality customer service is a key factor for any hospitality business to succeed. Therefore it is critical to ensure that careful attention is given to training, labour capacity and good working conditions.
Opportunities for the business
Costs can be reduced and productivity enhanced through good labour standards and working conditions. In the service industry, staff performance, friendliness, competence and quality all significantly impact on the reputation, success and profitability of a business. Attention to good working and labour conditions can help to attract and retain motivated and competent workers.
Client base can be enhanced if a company achieves certain standards or related certifications covering labour and working conditions (e.g. SA 8000 or those related to the service industry including customer service and quality).
Access to market and customers can be improved where approved supplier or certification programs include E&S requirements. For example, attaining standards on ingredient traceability, operational or service attributes such as ‘Organic’, ‘Fairtrade’ or ‘Eco-tourism’).
Employment grades and skills can vary greatly depending on the nature and scale of the hospitality operation. Nevertheless, the labour standards should be uniform regardless of pay and skill grade – from the head office of large resorts to kitchen staff at a food outlet.
Wages and working hours: The hospitality sector is a major employer of contract, migrant or seasonal labour, and workers who provide services via supply chains (e.g. catering services, facilities management and recreational services), so attention should be paid to working hours and the nature of shift work. The hospitality sector often involves long shifts and after-hours work, so care must be taken to ensure that low-paid migrant workers are not exploited. Immigration laws and work permits must be taken into consideration. Companies should not use third party contractors as a means of exceeding working hour regulations or avoiding minimum wage payments.
Good practice in this area can help to manage costs relating to recruitment, training and talent retention and maintain or enhance customer service and build the hospitality industry’s reputation and overall business success.
Freedom of association and collective bargaining: The rights of workers and the role of unions has previously been an issue within the hospitality sector. Extra care should be taken to ensure that the right to enter free and voluntary collective bargaining arrangements with management is respected. Failure to respect this and to establish a good relationship with unions could have negative impacts on a company (e.g. strikes). Collective bargaining can also be a constructive forum for addressing working terms and conditions and for improving worker/employer relations. It is often more effective and more flexible than state regulation. It can help in anticipating potential problems and can advance peaceful mechanisms for dealing with them that satisfy both employers and workers. Companies should adopt international good practice to help manage costs relating to recruitment, training and talent retention and to enhance productivity.
Child labour and bonded/forced labour: Child, bonded or forced labour is a risk in many aspects of the hospitality sector. Child labour may be employed in the hospitality industry for services relating to entertainment, food preparation and service (particularly in small scale operations) and the sex industry. Refer to the ILO briefing note on Child Labour in Hotels, Catering and Tourism for additional information on steps to be taken to identify and combat these practices. Non-compliance with ILO Core Labour Conventions on Child Labour/Minimum Age and Forced Labour is not acceptable under international standards. Measures to eradicate these forms of labour should be implemented as a matter of priority.
Equal opportunities and non-discrimination: Employment opportunities for women are generally high in the hospitality sector. However, sexual harassment poses a significant risk to women and companies should develop and implement employment policies to guard against this. Good practice in this area can help to manage costs relating to recruitment, training, and talent retention and enhance productivity.
Accommodation: Working hours in the hospitality sector can be long and may require extended periods of absence from family and community at remote operations such as tourist resorts. Where the company undertakes to provide (either directly or through contractors) worker accommodation, it should include the provision of basic services and take into account the principles of non-discrimination and equal opportunity. The company should develop and implement policies on the quality and management of the accommodation in accordance with Good International Industry Practice (GIIP) as this can help maintain a stable and productive workforce. Companies should develop and apply family-friendly employment policies.
For further sector specific guidance refer to ILO Briefing Note on Child Labour in Hotels, Catering and Tourism.
For further general guidance on Good International Industry Practice (GIIP) relating to labour standards and working conditions (in line with ILO Core Conventions), refer to E&S topic: Labour standards, IFC Performance Standard 2: Labor and Working Conditions, and IFC Good Practice Note: Non-Discrimination and Equal Opportunity.
Occupational health and safety
Risks for the business
Companies may face prosecution or fines if workers or contractors are injured or killed.
Poor OHS practices can lead to damage or loss of company assets, clients and business as well as increased insurance premiums and even legal claims.
Low workforce morale and erosion of trust can lead to higher staff turnover, lower productivity, additional training and recruiting costs, and reputational damage.
Opportunities for the business
Proactively involving workers and contractors in key decisions can help to identify and maintain good OHS practices, and improve implementation if found to be significantly different to existing practices or new practices adopted.
Quality of service can be improved and insurance premiums for workers’ and compensation payments can be reduced.
OHS is an important consideration for any business, regardless of sector and all companies should have in place appropriate OHS and emergency preparedness and response management systems, commensurate with level of risks. Measures should also be in place to ensure contractors work in accordance with applicable regulations and GIIP.
Where contractors are involved in operation and maintenance activities, companies should implement measures to ensure contractors work in accordance with applicable regulations and GIIP. Such measures should be covered in companies’ OHS and emergency preparedness and response management systems.
Specific OHS risks in the food and beverage industry include those in connection with:
Physical hazards (e.g. long working hours, repetitive work, slips on wet or food contaminated floors, food preparation and sharp knives, strains and hard labour associated with grounds management/furniture movement/installation for conferencing).
Exposure to noise (e.g. laundry, entertainment facilities, facilities management).
Chemical hazards (e.g. chemicals used in cleaning/disinfection operations and cooling systems (ammonia), pesticides used in landscaping and grounds management, chemicals used in pool maintenance).
Fire (e.g. ensuring customers and guests are protected and evacuated first can pose additional risks to hospitality staff).
For further sector-specific guidance refer to World Bank Group Industry Sector EHS Guidelines for Tourism and Hospitality Development, ILO Occupational Safety and Health Manual in Tourism and IFC Good Practice Note: Life and Fire Safety: Hotels.
For further general guidance on GIIP relating to OHS, refer to E&S topic: Occupational health and safety, IFC Performance Standard 2: Labor and Working Conditions, World Bank Group General EHS Guidelines and CDC Good Practice: Preventing Fatalities and Serious Accidents.
Resource efficiency and pollution prevention
Risks for the business
Fines and penalties can be imposed for non-compliance with national pollution prevention standards and waste management.
Excessive expenditure on energy and water supply.
Excessive expenditure on management of emissions, solid waste and wastewater.
Opportunities for the business
Lower operating costs, reduced environmental footprint and future proofing for resource shortages or increased resource costs can result from adopting energy efficiency, water efficiency and cleaner production measures.
Use and, where possible, re-use of food packaging with lower environmental footprint and reduced transportation costs.
Improved access to market and customers from adoption of certification standards such as ISO 20121 (green event management).
Energy efficiency: The hospitality sector can be a large consumer of energy. Companies often require continuous energy for lighting, air conditioning, refrigeration, food preparation, guest entertainment and security systems. Therefore opportunities for improved energy efficiency or the use of renewable energy should be explored and where possible implemented.
This is often achieved during the design phase (see CDC Project Design and Construction Guide) when energy efficiency measures can most easily be incorporated into the operational practices of hospitality facilities (e.g. training of staff, encouraging guest contribution to energy conservation, ensuring preventive maintenance and updating to more energy efficient products when replacing appliances.
Many energy efficiency technologies that may not have been feasible at design and construction are now economically attractive on a retrofit basis especially in areas where electricity prices have increased. Examples include LED lights, occupancy or motion sensors, room key card-power supply linkages and the linking of room booking online systems with heating ventilation and air conditioning (HVAC) systems to ensure that only occupied rooms are heated/ cooled. The price of renewable power sources such as solar panels has also reduced significantly.
Air emissions: The bulk of air pollution from hospitality operations stems from on-site power generation (particulate matter and GHGs), and ozone depleting substances from large HVAC systems. Particularly where older or poorly maintained equipment is used. Unpleasant smells and odours can also be a concern to local communities where significant food preparation takes place and where food waste is stored or disposed of on site. Air emissions control and monitoring measures should be implemented by companies in accordance with the applicable regulations and standards.
Water management: The hospitality sector often requires a continuous and reliable supply of large quantities of good quality water for drinking, guest ablutions, food preparation, cleaning, laundries, recreation, landscaping and design, fire protection and general premises upkeep. Consumption of water by guests at hotels and resorts can exceed that of the local population and therefore there is potential for conflict with local communities regarding access to water – posing a significant business risk. High levels of water use also leads to large volumes of wastewater, which may be expensive to treat and may require special permits, particularly in remote or pristine areas. Special attention should be paid to on-site sewage treatment to prevent ground water contamination and the potential for grey water and post treatment water recycling should be investigated.
Hospitality companies should assess water scarcity and pollution risks throughout their operations and where possible seek to introduce and implement water consumption reduction measures. Guests should be informed of local water scarcity issues and encouraged to participate in water conservation measures (e.g. choosing less frequent laundering of towels). Retrofitting of water conservation methods such as the collection and re-use of grey water for use in landscaping should be considered and rain water tanks installed where possible.
Waste management: The hospitality sector can generate significant packaging waste, as well as organic and solid waste. Handling, storing, treatment and disposal of solid waste involves significant hygiene and contamination risks and can be expensive. A waste management plan should be implemented aimed at reducing the amount of solid waste produced.
Where even small volumes of potentially hazardous wastes are generated (e.g. detergents and solvents from cleaning and laundry operations, or pesticides and herbicides from landscaping) the company should ensure that these are stored, handled, transported and disposed of in accordance with GIIP to prevent environmental contamination or danger to handling workers and nearby communities.
For further sector-specific guidance refer to World Bank Group Industry Sector EHS Guidelines for Tourism and Hospitality Development.
For further general guidance on GIIP relating to resource efficiency and pollution prevention, refer to E&S topic: Resource Efficiency, E&S topic: Pollution prevention, IFC Performance Standard 3: Resource Efficiency and Pollution Prevention, and World Bank Group General EHS Guidelines.
Community health, safety and security
Risks for the business
Social licence to operate can be put at risk if appropriate Life and Fire Safety measures are not implemented. Failure to do so can also lead to claims from customers.
Indirect risks to communities can arise from increased numbers of job seekers or criminal elements moving into the area.
Reputational damage and loss of licence to operate if excessive, intimidating or aggressive use of force by security personnel is used against communities.
Opportunities for the business
Building relationships with local communities can help to improve reputation, widen the customer base and provide a bigger potential labour pool.
Emergency preparedness and response: Companies must implement emergency preparedness and response systems to respond to accidental and emergency situations associated with the company’s activities in a manner appropriate to prevent and mitigate any harm to people and/or the environment. Companies should develop these systems in collaboration with appropriate and relevant third parties (e.g. local authorities).
Life and Fire Safety: This is vital to the hospitality sector. All buildings used by the general public should meet the highest standards for Life and Fire Safety (LFS). LFS should be taken into account at the design and construction phase, as retrofitting can be costly. Monitoring and maintenance systems should be implemented during operations. Companies should design and implement emergency response measures and plans to protect the public (e.g. clear signs for evacuation routes and the installation of smoke detectors and sprinklers).
Project’s/company’s area of influence.”>Local community safety: Hospitality operations can cause safety risks for local communities through increased traffic and population. Customer volumes should be taken into account when planning and managing parking and road access and existing traffic patterns and road use should be assessed when planning deliveries.
Health: Hospitality operators should ensure that activities minimise and wherever possible prevent negative health and noise nuisance impacts for nearby communities and the environment. Waste handling, storage and disposal should not contaminate land and water, or lead to vermin.
Security:
Many hotels, resorts and conference venues employ security staff to protect patrons, their belongings and the premises. When using security forces, companies should be guided by the principles of proportionality, good international practice and applicable laws for hiring, rules of conduct, training, equipping and monitoring of security personnel. Particular attention should be paid to any human rights violations from terrorism and sabotage and the potential for social conflict and unrest instigated by security personnel. Such principles include practices consistent with the United Nation’s (UN) Code of Conduct for Law Enforcement Officials and UN Basic Principles on the Use of Force and Firearms by Law Enforcement Officials.
For further sector-specific guidance refer to World Bank Group Industry Sector EHS Guidelines for Tourism and Hospitality Development.
For further general guidance on GIIP relating to community health, safety and security, refer to E&S topic: Community health, safety and security, IFC Performance Standard 4: Community Health, Safety and Security, UN Code of Conduct for Law Enforcement Officials, UN Basic Principles on the Use of Force and Firearms by Law Enforcement Officials and Voluntary Principles on Security and Human Rights.
Supply chains
Risk for the business
Reputational risks linked to the sourcing of products from unsustainable supply chains and/or providers who do not meet basic international standards and conventions.
Opportunities for the business
Collaborating with and, where possible, training suppliers to improve E&S management can lead to reduced use of resources, higher productivity and product quality and better relationships with suppliers.
If approved supplier programs include E&S requirements companies can benefit from improved access to market. For example, markets where customers consider sustainability issues when making purchasing decisions.
Consider local sourcing of food and beverages to help build stronger economic links with local producers and communities and as a potential cost saving exercise.
Improved sustainability across primary supply chains can enhance business success in hospitality operations. It helps to avoid reputational risks that might occur through association with companies with poor environmental, social or ethical practices. Particular attention should be paid to products (e.g. food or wood for construction) that may come from unsustainable or illegal sources.
For further guidance on supply chains, refer to the E&S topic on supply chains. Also refer to the CDC sector profiles for Manufacturing, Retail and Food and beverages.
Business integrity considerations
In addition to standard business integrity concerns, risks that are particularly relevant for the hospitality sector include:
The potential for hidden ownership by Politically Exposed Persons (PEPs).
Undue influence or political involvement in the identification, acquisition and leasing of land.
The obtaining of licenses and permits for construction and access to infrastructure.
Risks associated with vendors and suppliers.
Companies should have clear processes in place for managing government permits and inspections. It is also important that companies conduct thorough due diligence on any agents and local partners to prevent corrupt payments being made on their behalf.