ESG Innovations in Hospitality

By: Shana Kathleen Claar
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Co-authors and Center for Hospitality Research board members Michele Sarkisian, Ian-Michael Farkas, and Scott Taber ’85.

Amid Covid challenges and ever-changing rules and requirements for business, what is happening with ESG? The answer varies by industry. In some, Covid and lack of time and resources have pushed ESG to the back burner. In others, where operations have been scaled back, companies have found time to shift attention back to ESG. In the hospitality industry, ESG remains a strategic priority and has accelerated through technological advancements and access to data and best practices. In this article, we broadly cover some of the aforementioned technologies that are helping hospitality quickly improve on all dimensions of ESG.

What is ESG?

ESG stands for Environmental, Social, and Governance. Together, they make up a set of standards used by company leaders and other stakeholders (e.g. investors, employees, customers, and suppliers) to measure a company’s long-term impact on the environment and society (source: PwC).

Environmental criteria may include a company’s energy use, waste, pollution, natural resource conservation, and treatment of animals. The criteria can also be used in evaluating any environmental risks a company might face and how the company is managing those risks. For example, are there issues related to its ownership of contaminated land, its disposal of hazardous waste, its management of toxic emissions, or its compliance with government environmental regulations?

Social criteria look at a company’s internal and external business relationships. Does it prioritize and actively work toward achieving diversity, equity, and inclusion (DE&I) among its employees and leadership, the communities it serves and in which it operates, as well as at a global and societal level? Does it work with suppliers that hold the same values as it claims to hold? Does the company donate a percentage of its profits to the local community or encourage employees to perform volunteer work there? Do the company’s working conditions show high regard for its employees’ health and safety? Are other stakeholders’ interests considered?

With regard to Governance, investors may want to know that a company uses accurate and transparent accounting methods and that stockholders are given an opportunity to vote on important issues. They may also want assurances that companies avoid conflicts of interest in their choice of board members, don’t use political contributions to obtain unduly favorable treatment and, of course, don’t engage in illegal practices.

Environmental tech: Optimizing to reduce waste and single-use plastics

In the Environment category, emerging software are helping companies reduce their carbon impact by managing and diverting waste away from landfills with recycling programs and circular solutions. These software use location data to optimize waste pick-up schedules, so customers receive service as needed, cutting down on unnecessary pickups. They also enable companies to track their diversion and emission stats over time, so companies can assess their impact and make improvements to their waste management plans. Many large enterprises like Walmart, FedEx, Wegmans, Starbucks, Chipotle and thousands of small and medium businesses have adopted these technologies to reduce their waste management costs and environmental impact.

Another innovation in waste reduction is touchless beverage dispensers that enable operators to bill by the ounce, allowing for multiple price points on the same station. Cruise lines, stadiums and outdoor events like the PGA Tour are long time users of this technology, and some hotels and restaurants are now adopting it too. The dispenser systems are programmable to meet specific operator needs and use far less labor, waste less product, provide accurate data, and eliminate loss from customer over pours and unpaid refills.

Reducing food waste in commercial kitchens is becoming easier too with the help of computer vision-enabled tools—often a tablet, camera, scale, and bin—that visually track food waste and provide useful data to help staff identify the behaviors (e.g. overproduction) and policies that are responsible for the waste. With data in hand, staff can pinpoint the root cause of the excess waste and adjust processes to reduce it, often lowering costs all around as a result.

New menu apps are helping to reduce waste and improve customer satisfaction by offering personalized dining choices to customers based on their profiles, and they can help customers choose meals that fit their lifestyle, allergy, dietary, medical, or fitness needs, while integrating with actual menus offered by food and beverage outlets. Some apps offer a concierge-style service to help customers find nearby food options that fit their profiles.

Another trend on the food front is that many companies have turned to buying local whenever possible for both cost and environmental reasons. Local or regionally based distribution companies have made it possible for small batch farmers, dairy and others to supply food and beverage outlets in the region. Buying local products means lower delivery costs and fewer emissions, as well as an investment in the local economy and community.

Buying local food can save costs and help the environment.

Perhaps the biggest environmental issue facing the industry right now is the increased reliance on single-use plastics as a result of the pandemic. With indoor dining banned in many places and the Centers for Disease Control (CDC) recommending the use of disposable food service items (source: CDC), takeout orders and, consequently, the use of takeout containers—often made of single-use plastic or Styrofoam—have increased. Coupled with the pandemic-inspired belief of many people that single-use plastics, whether they are being used as tableware or toiletries, are more sanitary than reusable items, many hospitality businesses had to offer single-use items to remain compliant with CDC guidelines and address guests’ hygiene concerns. And while sustainable alternatives exist, they are often costlier than their single-use counterparts, and for an industry that is already struggling financially, they are not a realistic or viable option right now, as many businesses are faced with the fundamental question of whether they can afford to remain open.

In the food and beverage industry, Covid health guidelines have sparked an increased reliance on single use plastics, which have been considered more sanitary than traditional tableware.

Prior to the pandemic, in response to guest and employee pressure, hotels had been making strides to reduce single-use plastics in guest rooms through innovative amenity programs that included fridges stocked with reusable glass water bottles, filtered water and refillable toiletry dispensers, in-room recycling bins, biodegradable packaging and keycards, and elimination of plastic straws. (source: CNN Travel, New York Times). While the pandemic has halted this progress, guests’ and employees’ pre-pandemic attitudes toward single-use plastics are not expected to change post-pandemic.

Globally, attitudes toward single-use plastics are similar. Already, and despite the pandemic, 170 countries pledged to significantly reduce their use of single-use plastics by 2030, and many have already banned certain items (source: World Economic Forum), so businesses that are not currently on the path to sustainability, will be legally required to take action soon.

Many hotel companies have internal sustainability objectives, and changing laws will be a strong motivator for achieving them, but ultimately, consumers’ voices and choices will have the most sway. Consumers and where they decide to spend their money, more so than legislation, have the most influence over hospitality businesses’ sustainability policies and practices (source: Independent). Increasingly, consumers are buying products from sustainable or eco-friendly brands—nearly 8 in 10 consumers, globally, say they value sustainability (source: Barron’s)—which means that businesses will need to continue moving in the direction of sustainability in order to survive, pandemic or not.

Community engagement & tackling social issues

On the very broad Social component of ESG, many hospitality companies are prioritizing diversity, equity, and inclusion (DE&I) within their own leadership and operations. Most brands are measuring their progress in DE&I and formalizing mentorship and career growth tracks for diverse employees, company boards have diversified and continue to do so, and diverse candidates are being hired and promoted. DE&I is another area that technology has helped and disrupted. One such technology is a tool that eliminates bias in the hiring and promoting process. It helps candidates and hiring managers prioritize skills and experience over any other factor, ensuring that the best job-candidate matches are considered.

While technology has helped companies in countless ways, so has paying attention to the communities in which one operates. Community involvement comes in many forms from social enterprise profit-sharing to allowing philanthropic organizations, schools, etc. to use facilities for meeting and educating various constituents. Operators have also joined in community activities to bring attention to schools, parks, natural resources, volunteerism and more. Operators are becoming more of the social fabric in communities in which they do business, which humanizes companies and cements relationships while making a difference.

In anti-trafficking, AHLA, AAHOA, and other organizations have helped the industry understand the gravity of both labor and sex trafficking within hospitality. Various advocacy groups encourage hotels to train their employees on what to look for and what to do when they suspect trafficking in their midst. One group provides zero tolerance contracts that companies can use for their suppliers and employees to detail repercussions, like loss of business or termination, for being involved in trafficking operations.

In the corporate culture realm of the Social category, nothing has received more attention as of late than employee engagement. Pre-Covid, in full employment, companies knew that culture was a strategic advantage, as evidenced by highly engaged employees outperforming those from less than stellar cultures. Not to mention, Glassdoor and social media, in general, have made transparency about where to work and where not to work easy to find, and companies don’t want to be on the latter list. Tech innovators have created platforms to help companies create community and collaboration among the workforce. One such company enables strong cultures centered on productivity/work, social/recreation, diversity and inclusion/training, philanthropy/causes and provides metrics to help guide companies in where to focus attention. These types of software are particularly helpful in remote work environments, where culture can be hard to cultivate.

Responsible corporate governance

Governance is an area that has had significant attention for years now. Financial stewardship, cyber security diligence, outside independent directors, forensic audits, open board meetings, transparent earnings calls and more are a fact of life in the hospitality industry. Every company works hard to select trustworthy, consultative partners for audit, law and accounting. Measurements have been heightened and, with robust social media, it is nearly impossible to do anything that does not pass ethical scrutiny.

Tech-accelerated ESG: Good for society and the bottom line

With many stakeholders—consumers, employees, investors, and regulators—increasingly prioritizing ESG, company management teams and boards are also embracing the idea that “what’s good for society is good for business,” as mounting evidence shows that environmentally- and socially-conscious business practices can open the door for growth and higher public-market valuations (source: Morgan Stanley). The sooner companies bolster their ESG strategies the better for all stakeholders. Technologies that streamline and optimize ESG practices, like the ones outlined in this report, promise to accelerate a company’s positive impact on the world—a win for society and the bottom line.

The Cornell SC Johnson College of Business and its various schools and departments are at the forefront of impactful research. The School of Hotel Administration’s Centers & Institutes, including the Center for Hospitality Research, provides a hub for students, faculty, hospitality industry leaders, and innovators to connect. If you are interested in learning more about the technologies discussed in this report, please send us an email.

Co-authored by Michele Sarkisian, Ian-Michael Farkas, and Scott Taber ’85, and copy edited by Nicole McQuiddy-Davis.