Retrofit Better: Why updating existing hotels is the best way to green the tourism sector

The tourism industry’s economic impact is vast. It creates hundreds of millions of jobs and propels growth. Yet its environmental footprint is equally outsized. Hotels are major contributors to global carbon emissions. With 24-hour energy consumption, laundry facilities, waste disposal and production of guest consumables, hotels have a higher carbon footprint than other buildings categories. 

The hotel sector faces a climate reckoning: it must cut its emissions by 66% by 2030 and 90% by 2050 to ensure predicted industry growth does not lead to a corresponding increase in carbon emissions. Building new zero-carbon hotels and resorts is an important part of the solution, but it won’t be enough to accomplish that ambitious carbon-reduction goal --not when 80% of the world’s existing buildings are still expected to be in use three decades from now.

The answer: retrofitting existing hotels to a green standard.

"The hotel sector faces a climate reckoning: it must cut its emissions by 66% by 2030 and 90% by 2050 to ensure predicted industry growth does not lead to a corresponding increase in carbon emissions."

Updating an existing hotel building provides clear environmental benefits through energy efficiency. It is also far more cost-effective than demolishing an old structure and starting from scratch.  We know this because, as hotels sat idle during the last year of pandemic-related lockdowns, we had a rare opportunity to look at their carbon footprint when they were mostly empty of people. The resulting in-depth analysis will improve the industry’s understanding of how it can transform existing hotels to be net zero. 

For example, a white paper led by the design and engineering firm Arup, Transforming Existing Hotels to Net Zero Carbon, used a real-life case study to find that prioritizing different retrofit interventions has the potential to deliver a 38% internal rate of return after five years. At the same time, decarbonizing existing hotels helps mitigate the economic impact of the COVID-19 pandemic by leveraging periods of low occupancy and preserving jobs. Retrofitting also can support financial institutions’ efforts to green their portfolios.

Under pressure to meet aggressive net-zero carbon targets, regulators, tourism ministries, and development finance institutions like IFC are increasingly embracing the green building and green retrofitting agenda for all commercial and residential buildings, including hotels. But achieving net zero also requires the financial sector to play a major role. Investors must provide the necessary credit to empower hotels to retrofit their facilities.  

The Hotel Green Revitalization Program (HGRP), also known as Hotels Go Green, is designed to provide much-needed incentives for financial institutions to encourage retrofits.  The IFC program will provide risk mitigation that incentivizes financial institutions and hotels to undergo green retrofits over the eight-year life of the facility. Alongside financial assistance, IFC will provide access to its newly updated EDGE 3.0 tool, which allows green retrofit buildings to be certified as climate friendly. Hotels can also be certified by other globally recognized certifications such as LEED.

In Egypt, the program takes a capital markets approach in providing risk mitigation to banks through a HGRP Bond with credit enhancements by IFC and partners. The proceeds will be used for green retrofits and other debt obligations that the hotels decide to take on to be certified. Capital markets investors such as funds and financial institutions can subscribe to the bond. This structure could also be replicated in other markets.

Recently, booking.com has launched a sustainability badge, which makes it easier for travelers to make sustainable booking choices while also incentivizing hotels to become greener. IFC’s HGRP Program compliments this and other efforts by the industry by providing much-needed capital to undertake these retrofits, particularly as the pandemic continues to evolve and disrupt travel.

Getting to net zero won’t be easy. Hotels Go Green is just one innovative solution to help the tourism sector in emerging markets begin its necessary transformation—not only to “build back better,” but also to “retrofit better.”