Green loans in the hotel industry are on a sharp upward curve in Australia as environmental, social and governance becomes more of a “prerequisite” and banks hold hoteliers to account for their policies and practice.
Sustainability-linked loans are relatively new in Australia but are starting to multiply, with their structure and terms orchestrated to support and incentivize hotel companies that have a strong ESG commitment.
Government-mandated emissions targets are looming, particularly in New South Wales, which wants to achieve 70% cuts in all buildings by 2035. Such initiatives make green loans increasingly vital to get hotel development projects across the line.
Green loans for Australian hotels only took off in 2021.
Among the first in Australia was a loan for 39 million Australian dollars ($25.3 million) from Aareal Bank to refinance the 192-room Holiday Inn Express Sydney Macquarie Park, which is owned by Australia’s Pro-invest Group.
As the owner and manager of 22 hotels in Australia, Pro-invest has been at the forefront of ESG commitments, with more of its hotels moving towards net-zero emissions than any other hotel group, said Sabine Schaffer, the group’s managing partner and co-founder.
Green loans are playing an increasingly important role as Pro-invest pursues best-in-class energy ratings across its portfolio via Australian benchmarking scheme NABERS, or National Australian Built Environmental Rating System.
“Pro-invest is actively pursuing green loans to hold itself accountable and ensure that sustainability is ingrained in every part of its business,” Schaffer said.
The Aareal Bank green loan is being used to enhance energy efficiency and water-saving measures at the Holiday Inn Express Sydney Macquarie Park, which was built in 2016. Schaffer added that the improvements include “smart lighting and air conditioning, better housekeeping and laundry processes and systematic energy auditing of consumption data.”
Schaffer said green loans help hoteliers transition from fossil-fuel-based systems to low-carbon alternatives.
“Not only cutting costs but future-proofing their assets, by adopting energy-saving technologies and eco-friendly materials to improve the value of assets,” she said.
Crystalbrook Collection, which has a portfolio of eight hotels and resorts in Australia, secured its first sustainability-linked loan in October from the Commonwealth Bank of Australia, CEO Geoff York said.
York added that despite green loans being a “relatively new concept,” the move toward such loans “underscores the growing importance of ESG factors in corporate finance in Australia and marks a significant milestone in the Australian hotel landscape.”
"Increasingly, the companies we work with expect strong sustainability credentials and evidence of our sustainability policies as a precursor to engaging with us. Whether they’re hosting events, booking conferences or selecting a corporate hotel for their employees and partners, [ESG is] no longer a nice-to-have, it’s a prerequisite,” he said.
The structure of Crystalbrook Collection’s green loan requires the group to meet sustainability performance targets “focused on minimizing water usage and waste, reducing carbon emissions and enhancing energy efficiency across all the properties,” York said.
“Unlike traditional loans, these financial instruments tie the borrower’s cost of debt directly to their sustainability performance, incentivizing the company to achieve ambitious predetermined environmental or social targets,” he said.
York added the loan offers “financial flexibility” to boost ESG commitment while ensuring profitability.
In on the act
In January, investment management firm Salter Brothers — which has a portfolio of Crowne Plaza, InterContinental and Sofitel hotels in Australia, Japan and the U.S. — also announced a sustainability-linked loan from Commonwealth Bank. The firm said the loan will be used to embed sustainability firmly in operations during ongoing expansion.
Mei McNamara, Salter Brothers’ ESG manager, said the loan funds will initially be used for green certification and energy-saving measures at the firm’s luxury Spicers Retreats hotel properties, which are operated by its Salter Brothers Hospitality division.
“By adopting SLL, we can enhance our existing strategy through certifications such as EarthCheck and Eco-Tourism and implement it across all Spicers properties, including newly acquired hotels. Additionally, the loan will support emissions reduction through renewable energy generation and fund more energy-efficiency projects,” she said.
McNamara said if hotel firms desire more of a sustainable business, they must start to think differently in how they do business.
Sustainability-linked loans are likely to continue to proliferate throughout Australia's hotel industry, Schaffer said.
“We firmly believe that green loans are the way of the future, to keep our industry accountable. They are a powerful tool in driving real environmental change within our sector because they come with clear, measurable sustainability goals,” she said. “We hope that the rest of the industry will follow, as hospitality operators have a responsibility to protect the natural assets that people travel to experience.”
Investing in sustainability comes with little politicization in Australia. Schaffer said if some parts of the world resist climate initiatives and ESG, other countries stand to benefit from the rise of sustainability loans.
Crystalbrook’s York said as banks seek to increase the share of green buildings in their lending portfolios, many now are seeing ESG policies as part of their corporate responsibility.
“We can’t speak to how U.S. domestic policies might influence global lending trends, but our focus remains on driving sustainability initiatives within our business and working with partners who share that commitment,” he said. “We’re already seeing other industry players, such as Salter Brothers, take a similar approach to financing. The increasing alignment between sustainability and financial strategy reflects the growing recognition that ESG commitments are not just ethical choices but smart business decisions.”
McNamara said there is one major one obstacle, but even that can quickly turn into a positive if hoteliers aim high on their sustainability goals.
“There are numerous providers of sustainability-linked loans in Australia, but the cost of SLL reporting can be a barrier. To have a meaningful impact, the chosen targets must be ambitious and provide similar outcomes to committing to emissions targets through SBTIs, or science based targets initiative,” she said. “Once a commitment is made, the financial incentives help accelerate project completion and drive urgency within our operation to implement sustainability measures as we transition to a low-carbon economy across all of our hotels.”