Future-Proofing Sustainable Tourism in Asia
It was a great discussion to really get us started here. Listen, Ritesh, thank you so much for joining us this morning. Thank you for having us. It's great to be here. You know, the travel and tourism industry here in Asia Pacific is a big driver of economic growth in the region. It creates about 350 million jobs.
That and travel tourism contributes to about 9% of the region's GDP. And that's a growing number. These are numbers that supply to us from the World Travel and Tourism Council in partnership with Oxford Economics. And Liz is going to expound on that a little bit later. But we also have to acknowledge, though, that the region's greenhouse emissions per dollar of GDP tied to travel and tourism is higher than the rest of the world, as well as freshwater consumption that's linked to tourism.
So what does the region's travel and tourism need to tackle to make sure that sustainable tourism is a reality? So thank goodness we have both Liz and Rakesh here to help us explore that. Liz, I'm going to start with you because I know you've got lots of great research and some numbers there, but how is Asia doing right now in terms of balancing economic recovery and sustainable tourism? Well, I'll start with updating that. This year is the first time we've actually achieved the GDP level that we had in 2019. So we're forecasting that we'll be 5.5%
above that level. And the future is really bright. You know, as as you mentioned, well, the growth rate over the next ten years will be we're starting at a valuation of 3.2 trillion in GDP currently for direct and indirect benefit. And it's projected to grow 6.1% over the next ten years, achieving $5.3 trillion
as a value. And this is, you know, we need to you know, part of the reason WTC was formed was basically to communicate to governments around the world and and advocate for the value of this mega sector. People underestimate we are actually composed of many, many industries. And with respect to balancing that with sustainability and responsible travel governments, I'll say in the last couple of years I have really seen double down. For example, ASEAN tourism ministers. Earlier this year they issued a sustainable tourism roadmap as well as a framework for eco tourism. And this is for all their member states
to have, you know, to drive structural consistency in deploying sustainable practices. So it is you know, there's amazing opportunity in this region. Asia-Pacific is going to be the growth engine for the globe. And in terms of jobs creation over the next ten years, 64 million of the 100 million new jobs over the next ten years will be here in our region, which is amazing. And so, you know, it's an incredible engine for poverty alleviation. And it's our opportunity, really, with all this development and growth in Asia Pacific, it's our opportunity to adopt better models and and leverage the best practices that have been identified. One key element is that I think the
governments are going to focus less on IVUS, the traditional number in international visitor arrivals. They're going to focus more on jobs creation, domestic tourism, spend, contributions to the community and really find a way to balance that along with sustainable growth. Yeah, and it sounds like those conversations are now in some ways happening more so than than before even the pandemic.
I've seen a huge shift. Two, three years ago, it was more about, let's just get the business back. It was more survival. We had the hardest hit industry globally, and now it's really about balancing that with healthy growth. That's great. Well, Rakesh, I mean, you obviously are an owner and operator investor in the hospitality industry. Where how do you, how do owners like you approach sustainability and that balance, especially post-pandemic? I mean, just a couple of things. First of all, just to follow up on the point from Liz, what's interesting is, is governments trying to get a balance between the economic recovery, the need for the impact on GDP and over tourism.
That's a real balancing act. And even though everyone wants the GDP number and they want the economic growth, they don't always get that without the Overtourism negative impacts of balancing sustainability and travel with numbers is always a difficult challenge. From our perspective, we do have a lens all the time with sustainability in terms of what we're doing and the in the hotels we own and invest in. We do that for several reasons. One is obviously consumer demand. So really a big shift in terms of consumer behavior and demand to want to stay in green type accommodation, but really not finding the kind of accommodation that they would like to stay in would be number one. And are they willing to pay for it now? I mean, we've heard obviously, Dr.
Myriam talk about that. I think so. But it's not it's not confirmed in the data, to be honest. Right. So I think people say they'll be willing to pay a premium. Are they doing or not? Difficult to say in terms of behavior. What we do know is they're finding it difficult to find green accommodation to stay in.
Right. I mean, verified green accommodation. Right. The other shift, of course, is governmental that this talks about. So we are reacting to consumer demand, a governmental push as a carrot and stick. So, for instance, in our future development will be certified, which is IFC for the stuff we do in Sri Lanka. Also in Customer, we're travelife engaged.
So we are doing all the right things to be verified and certified because we believe the demand is going to be there for us. Yeah, well one thing I also that that's from our perspective at a micro level, at a macro level, you know, there is a shift in the industry. It's not it's not a tidal wave or a flood right now.
So some companies like Pan Pacific in Singapore is doing a great job. But most of the installed base in Asia for hotels is independent hotels. And I'm not sure they're shifting fast enough.
And the problem that, of course, is unless you convinced that installed base to shift, you're missing a big piece of being sustainable. Yeah, that's right. Because it's so much easier to office, obviously build and make sure that it's green, but it's harder to then, you know, get all those independent operators up and it's really hard to retrofit. We've done it. It's much easier to greenfield built and just convincing, giving independent hotels an incentive to change. It's got to be a mix of carrot and
stick. Yeah. What is what is the cost differential between upgrading versus building green? We prefer actually somewhat to build green. So in PwC, as an example, we're building green. So as an example we do wellness, right? So we have a wellness brand called the CASA, the Casa in some movie where retrofitting to be travelife engaged in, we can decide what to do. So we built a yoga sala from scratch. We can put solar panels on the roof and build it in a way whereby that yoga sala is self-contained without being on a grid.
But if we retrofit it so that you've got, you've literally got to start again. So it's easier to green field, harder to brownfield, but brownfield, of course, is more cost effective sometimes. So what what do you think is a cost differential here? Because we love numbers here.
Well, if you look at solar as an example, I call to Greenfield brownfield. What I will say is you look at solar, solar panel costs have plummeted because the Chinese are sort of flooding the market. What we know now in a retreat in care is if you do solar to a certain level without batteries, it's about three or four times return on investment in terms of years to deliver that positive return if you do it with batteries, about seven, eight years. So so we always like as a fund, we like to think, can we get a positive return within the life of the fund? That's important for us, right? And when you look at kind of your portfolio, I mean, how much in terms of upgrading will you be having to do or are you committed to to working on? We we take a view. So I mentioned this before. Of course, we have to create a win win. So we can't just do 100% of everything because we won't make a financial return.
We also have responsible our shareholders to make a financial return, right? So we try and pick on the things which are cost effective within the life of the fund. So in summary, we'll do things like travel life, which is a tick box exercise and do some retrofitting, but we admit we can't do everything in pocket. We can start from scratch. So we've got to pick on the areas where we can create win wins. We admit we can't do 1% of everything because I think it's very difficult to look. I mean, it is when you take a look at, you know, upgrading, for example, I mean, because that's where I think a lot of Asia sits right now. Right.
What does what does a sustainable tourism project look like? I mean, what what is the ideal here that we're trying to achieve? What does it look like? Well, travel and tourism is incredibly complex. The number of players, you know, in a travel like that, that the touch points in a travel experience are really varied. So, you know, you talked about, you know, the independent hotels and how they have to need to upgrade. One of the things that we identified as WTC is we wanted an ease, a level one very accessible program for hotels to to get a start in sustainability.
So we started we launched our hotel Sustainability Basics program and this was done in partnership with Jinjiang and Radisson, and we've now got 4000 properties on the platform. And you know, our goal is to multiply that by ten. And it's really for, you know, these. It's for the even the standalone independent properties to make it accessible and implement a 12 step process. And I mean, in terms of that's a 12 step process, I mean you introduce it how, how, what are you seeing in terms of the adoption rate, especially here in Asia? Well, since it was born in Asia, we've the most properties have certainly adopted here. And I had the pleasure of launching it actually in the Philippines and India. And what I saw in the last six months was an exuberance and interest in in adopting them.
And I think it's a matter of it is complex and it is particularly for smaller players. But what I'm seeing is that even competitors will come together with respect to sustainability in terms of best practice share, in terms of supporting each other. And that's what it will take. You know, this is a this is not a space where we compete. It's it's really an area that we need to collaborate and share best practices. I'll just add on that just from my
perspective, again, from an owner and partner perspective, what we would love to have is some uniformity around standards, right? Because at the moment it's a bit like an alphabet soup of acronyms or things you can do to be sustainable, right? So it's LEED, it's BREEAM, it's edge, You can pick any number, right? And so what we what we lack is, is regional and actually global uniformity to allow us to be sustainable and transparent and accountable. At the moment you can sort of pick and choose a little bit. Right. And I think this feels like there's sort of a competition for who can be the standard. If you look at accounting, it's IFRS,
right? So you have a global start or US gap yet, so you have a global standard. In some ways we need to have a global standard. It makes it easier for us to use and then we adopt it. Yeah, that's the challenge it sounds,
but it sounds like regionally there does need to be a regional standard of some sort, right? I mean, is is, is that possible? Well, what I'm seeing is that, you know, and and kudos to this. The independent governments around the region are developing their own sustainability platforms. And they might have even, for example, a hotel program. What we're trying to do is unify that. And we're you know, we're a neutral third party since we're a nonprofit and industry association. So what we want to do is bring a standard that is, you know, our standards are actually created with input from 20 or so hotel partners.
So is really created by the industry, for the industry. But you're right, it is. I think the important thing, though, at this point, particularly, you know, from a consumer standpoint and a consistency standpoint, is to have verifiable, certifiable standards. You know, the days of greenwashing, I mean, certainly EU is going to lead the way in terms of mandates against unverified green claims. And so that is a standard that we're all
going to follow. I think we take a self-fund is like a six year fund, right. 6 to 8 year fund. And so we've just taken a view to Liz's point is that is that the same way we get audited as a fund for financial data every year? We do an audit. It's a it's a it's a big exercise, right? It takes six months to finish an audit for a fund. Right. I think going forward there'll be green audits, you know, So if you can't when we come to solar hotels and six years from now, if we don't have a six year track record of green audits, I think it becomes harder to sell the hotel.
And therefore I think there'll be a premium on access if you do it correctly. So even though we're going beyond what we have to do because we believe in five or six, it will be it will be value accretive and that's what we do it. And that's the right approach because it's just going to evolve further, we think.
So, yeah. Who do you think or what will be the momentum for those green green audits? I mean, where does that have to come from in terms of push for that? Look, I think it's got to be slightly governmental, right? So if you look at the EU, you know, it's 27 countries, it's slightly, slightly, slightly homogenous. The UK doesn't care any more, but it's it's slightly homogenous and therefore you can get action across 27 or 17 countries.
Right. Asia is a bit more disaggregated and disparities. So, you know, we operate across Singapore, Thailand, Hong Kong, we're Hong Kong based, Sri Lanka, etc. and every country is trying their thing, but it's not joined up yet. And so I think joining it up, as Liz says, is the most important thing because people will then go and adopt it. I think the EU will lead and potentially that's where you'll get the drive for global standards. But it's got to come from an aggregated
approach, not a disaggregated approach. Absolutely mean it'll be led by EU. We partner with players like Travalyst who bring the industry together as well. And so, you know, it is an important impetus to unify.
And standardized. I wonder if you can talk a little bit about the EU initiatives and how you think that might be applicable applicable here to Asia as well? Well, basically, I mean, they've been leading on a number of fronts, right, in terms of privacy laws, in terms of. So it's the same in sustainability. You know, the and I think it's a healthy move there. I think you'll see that some programs are going quiet because of the standards regarding verification and certification that are anticipated. You know, because the the penalties are
quite onerous in terms of greenwashing claims. You definitely do need to stick. Yes. You know, the carrot and the stick and then the stick. So what's happening now? You have legal liability, right? Which is why we talk about why there are so many more ESG fund 84 ETF funds which have been taken down because they claim to be ESG compliant or investing in each ESG stocks, but they're still tobacco companies. So I think people are now pulling back a little bit because there's legal liability around claiming to be green or claiming to be ESG and not delivering it and not verifying it. Right. That's a that's an important change. Right.
But one thing I'll emphasize is that, you know, surveys have shown that affluent travelers here in Asia-Pacific are particularly keen on responsible tourism options. I think Miriam alluded to that earlier. The global number is now 85%. While in Asia, I've seen numbers like 98% for India and 99% for the Philippines.
And I believe it's because, you know, many of our developing nations, we're at the forefront of climate change issues. And so they feel it acutely. And so it's not a political question out here. It really it's you know, we're front and center and we see the reality.
And it is, you know, I am inspired despite the challenges. I am inspired by seeing the motivation coming from all the stakeholders in the ecosystem, from the government. The consumers want it. They want more transparency, They want more authenticity in terms of, you know, what is being claimed as sustainability and sustainable and and from private enterprise. So I guess given that, how then can
private industry and governments work really together to push sustainable tourism? I mean, are we seeing momentum on that front? I think Europe is better. So I spend half my life in Europe, so I see it quite upfront, right? So in the UK, you know, there's there's PPE around, for instance, wind energy, which is a big thing in the UK. So you see a lot more collaboration. So governmental mindset I think is strong around doing that so that the governmental collaboration with private I think is super important. I think in Asia, you know, it's the obvious stuff, right? So incentives, you know, tax breaks, you know, cheaper financing, things that will incentivise or help will support hotels to become more green or more sustainable, I think is really important. So we always look for finance and we talk about green finance and we always look for financing because we like to have leverage.
But being green is not helping you get better financing. You know, it's not cheaper from from a bank perspective. It's a it's a it's a risk decision about whether you lend or not. And the green thing is kind of must some you must have rather nice to have.
Right. But if there is governmental underwriting for the risk, then you potentially have more action. So that's where the government can come in and make a difference with banks and private enterprises to create a shift. Yeah, I mean, we're seeing some of that here in Singapore. Yes. But yeah, I'm wondering across when you look at the region, what are some of the best practices around that, around underwriting funding, around really encouraging funding? I mean, look, you have banks at the conference in today, and I'm also a former banker as well.
So the reality is, is when you're when you're making a risk decision, it's based on the sponsor quality ultimately and the cash flow generation, that's great if you're a blue chip company borrowing, but you're missing this huge sum space. Right, Right. All these independent operators and I mentioned more than half the hotels are independent. So where's that piece? And what you find is that the banks are really ignoring the SMB piece in general green or not Great, right? And therefore, you then have private credit funds which are charging ten, 15%.
So there's a piece here that if you really want to move the dial, you've got to address something here, either with banks or governments. But that's where the support is needed. Him And it is that the challenge? I mean, in terms of of for all of these small independent operators to upgrade, how do you get funding for that? So we talk about solar panels, right? The cheap, the cheaper rather, but the battery is expensive. But you've got it. You've got to convince an independent hotel owner in Kuala Lumpur that actually, you know, you need to put solar panels and you have to install it. They cost $200,000.
The ROI is, let's say, five years. His first question is how to get the whole thousand dollars I've just got through Covid Yeah, so I've had negative panel for three years who helps him with $100,000? This is the piece. Yeah. Are we seeing anything less in terms of. Across the region any help to SMEs to
really help them upgrade. Now I am seeing government support in, for example, Thailand, Japan, Philippines here. Certainly the government is very supportive of Esims.
And so I am seeing a concerted effort in public and private partnerships to to support that. I do want to reiterate a quote that Janet Yellen just made from G20 in Brazil, and she said that, you know, to to you know, there's a need for $3 trillion a year over the next 30 years in order for us to convert to a low carbon economy. And then she considers this the largest economic opportunity in the 21st century. So, you know, and the amount of green funding available right now is is still very limited compared to the immense need. And so I think, you know, what needs to happen is similar to the sustainability standards, is standardisation in terms of, you know, what you know, what does every dollar contribute to? Are you, you know, is there a standardization? And and I understand Singapore is working on a taxonomy in terms of standardizing the definition, in terms of where the dollars are going and what they're contributing to. Yeah. Now, you mentioned green financing, and
I'm wondering, obviously it's still fairly nascent, especially here in Asia. What needs to happen? Let's just even talk about the advantages of green financing. I mean, are there advantages to green financing? What needs to happen for it to really get momentum here? So our observation is actually that you're not getting a cheaper funding rate because you're green.
I don't think you're getting special particular terms because you're green in terms of ten or. And so actually, I think, as I said, it's much more you have to be green to get the loan. And it's not a it's not a it's a must have rather than a nice to have. Right. So I think what it comes back to is that
the first decision the bank will take is, do I want to lend? Right. And then are you green getting past the first piece is do I want to lend first? Right. There are bank. They have shareholders. They have they have a board. Right. And so I think in general, just the general point would be lending and hospitality is still quite hard.
Even though things are operationally much stronger because banks are still reacting to Covid type terms. And I mean, here obviously we mentioned here in Singapore, we've seen Pan Pacific get green financing there of other other projects that have gotten green financing, either partly with with help here from from the government. Is there and I guess maybe that underpins it, you really need to have government support. I mean, what lessons can we learn here from Singapore that might be applied across the region? I mean, I mean, what you'd like to believe is that Singapore's we're sitting here can be a thought leader. You know, so you have you have an ASEAN region, Singapore being one of the more developed countries within ASEAN. Right.
So the PAN Pacific path is interesting and can be thought leadership for the region, if you like, right. When you have a pick conferences or ASEAN conferences potentially going and, you know, trying to create, you know, communications that encourage more of that would be it would also be good as well. But I would just emphasize it's quite blue chip. But, you know, I mean, Pan Pacific does a great job that it's a blue chip sponsor. Right. You know, so they could probably go and
get the loan. Right. So, you know, we need to be addressing the next level down. And then you start to have an impact. Yeah.
Yeah. We also want to take your questions as well. I think we've got a couple of of mikes that are running around. But yeah, please ask the question to rotation. Hi.
Good morning. My name is Friend of us Iraqis. This a question for you. When you mentioned that as a former banker and a current investor in this space, what's the differential? Which might be acceptable for green funding or green financing, because very clearly there seems to be an expectation that while the risk is higher, the returns need to be very similar. And that's a contradiction in many ways. So what's because that you can't add a dimension of increasing something and expect the same returns? But in terms of the risk, if you're doing a green loan to a viable hotel business, I'm not sure the risk would be higher, Right? Fair enough. Yeah.
Yeah. Yeah. What would be the difference? To motivate. Yes. Motivate lenders or borrowers to say I'm willing to. As to take you example, there's $100,000 of additional capital required to to install solar panels. What would be the differential? Because $100,000 for a normal cash flow would be treated differently with the addition of 100,000? Yeah, I think the challenge, the challenge the banks have is that and this, by the way, it's a bigger conversation. But if you look at lending post GFC, you
know banks had made it had a big challenge lending to to borrowers that hadn't done the proper KYC. So it's a bigger it's a 15 year thing, right? So what banks did then was lay off, boarded SMB customers. I was at HSBC. That's that's what you do, right. And so you've you've ended up with blue chip lending. So that that's the history, Right.
And so now, if you're trying to get back into SME lending again, the question for a bank is, is it financially viable? Does it make a return? And what's the risk? Is the risk return, if you like? I'm not sure that larger banks are focused on that smaller risk, if you like, because even if the risk return is the same, it's $100,000, right. And the time you spend versus doing $1,000,000,000 loan to a larger sponsor, you know, it may require a similar or slightly larger team, but your return is going to be bigger on the billion dollar loan. So I think it's not the micro risk return.
It's more about the time from a bank and whether they make a return on that loan. Right. I think what should probably happen is, as an example and this will never happen I think. Right. Is that is that is banks think about risk mitigation. Right.
So if you can take away some of that risk from the bank, a governmental underwriting, you'll encourage them to do more. So that would be a positive step. Yeah. So essentially, you're saying there needs to be a pool of capital which can absorb the initial risk if there may be or the additional cost, as maybe it won't happen. But yes. I'd like to I'd like to build on that reference to risk mitigation, to sustainability principles and looking at, you know, destination resilience, it it actually is risk mitigation when you look at the multiple factors that could impact your investment, your asset in that particular locale.
So you want to you know, it does call to question some of the both the imminent and the strategic risks that you might undertake in that destination unless you, you know, put in the right principles. Yes, please. Hi. Hello. Yeah, Michael here from Ocean Pixels. We work a lot on the blue economy. I just was wondering, given the awesome video and the introduction of Marianne earlier about being nature positive, how far are we from, in your perspective, the tourism industry, and also in the financial institution angle on.
Valuing natural capital and putting those in the balance sheets and recognising the value of the environment more than just the infrastructure, the traditional sense of infrastructure and doing green financing on that. Because in my opinion and this is a shift that's that's happening also in developmental banks, knowing how to value natural capital, the natural assets that are available in these locations where you speak about tourism would then change the way that financial institutions would look at the deployment of capital. So where are we there and what do you think we need to do to maybe accelerate that? Thank you.
I think that I think it's a great point, by the way. And so I think the principle is correct. And let me give you the challenge. So so we go through a once a year evaluation process, which is an independent evaluation of all our assets. We are audited as a fund. Right. So if you speak to the value and say, please value my assets, of course, this is not a this is not a computation in the in the evaluation methodology. Not yet, exactly.
So if if you were on this comes to governmental action, if you were to make this part of how you value an asset, it becomes part of an asset on our balance sheet. Of course, it would incentivise people to do this. I just great point. It doesn't happen today is if I go to X, Y or Z property value, there's all the big ones, right? And so please value my, my, my building and value my operations. Do a DCF, they do all that. That's great value, my natural environment. But it's a great point. Yeah, I think we've got we've got time
for one last question. Yes, please. Over there. Thank you. Yeah. Thank you very much. I'm so glad I'm here listening to all of you.
And I'm not high at the Alaska Institute, which we are mostly a wellness. We have fellowship programs which make everybody I mean, that woman and youth for us as a witness. And I was wondering if you were talking about many things, but would you do you have special? Because I think that the involvement of woman are not you woman are very thinking a very important role in sustainable development goals. But do you have special loan, financial
support or whatever for woman Because, you know, like we have a special law in Indonesia, we do have for woman, for a house, for the household also. Then what is your program specially for women and youth, especially for the tourism, Because now we have start up, you know, it's more millennial. I mean that youth and woman are there. Thank you very much. We don't directly have any involvement
in that, but certainly the track record for loans to women owned businesses has been very positive. And, you know, we we published in the last couple of years an environmental and social impact report. And, you know, the two points, the two segments that you mentioned women and use are critical members of the travel and tourism economy. And in markets that are more mature and better developed, you've got more equity, you've got a high number of youths coming into the industry and you've got equity in terms of male female.
And there is opportunity also here in Asia to varying degrees in different markets, but there is an opportunity to support that. And you know, unfortunately during COVID, what we found in the statistics is that women were hit particularly hard because they they populate the lower paid segment of the jobs. And, you know, unfortunately, they were the hardest impacted. So it is really critical. You know, and honestly, one of the the global issues for travel in fueling the growth that I've seen most commonly across the regions is attracting back the talent into the market. And one of the key ways to do that is to support women and youth entering the industry. Right. Thank you.
So sorry as one two not but this is an invitation because if you come to you are invited to International Sustainable Forum in Indonesia. In Jakarta we have a site event for Women and Youth Special Action. It is on the 6th of September site event for International Sustainable Forum. Thank you. Great.
Thanks so much. And I think Liz and Ritesh will also be available through throughout the day or for the next couple of hours anyways for us to you to continue in this conversation. Thank you so much for such an insightful conversation. We obviously need to spend more time to talk about these things.
I really also would like to spend some time to acknowledge Red Sea Global and their support to make this session possible. And of course, all of you for being such a great engaged audience. Please head over now to the Grand Ballroom, where our mainstage programming will be happening at 930. But thank you.
Thank you.
2024-08-11 09:04
