When you plan a trip, you probably focus on how long you’ll stay in each location, what sights to see, the food you’ll eat, what clothes you should pack, and so on. You probably don’t think about how traveling contributes to climate change and otherwise harms the environment, or how it impacts communities that might have a love/hate relationship with tourists and their much-needed spending. For an individual who is getting ready to take a business trip or vacation, neglecting these things is somewhat understandable. For investors and managers of companies that depend travel and tourism, they simply cannot be ignored.
According to Bloomberg, by 2033 travel and tourism will grow to a $15.5 trillion industry that represents almost 12 percent of the global economy, a 50 percent increase over its value in 2019. On the one hand, travel is enriching – it creates jobs, can help us to appreciate other cultures, rejuvenates our bodies, and provides priceless memories with family. On the other hand, the projected increase in travel is simply not sustainable in its current form, so the industry must get serious about making changes.
In this article, we unpack (pun intended) the issues surrounding sustainability in the travel and tourism industry. The first question to consider is whether our focus should be on (1) how the industry’s revenues and profits may be negatively affected by climate change and other environmental and social factors, OR (2) how the travel industry negatively impacts the environment as well as the communities where it generates its revenues and profits.
In the language of sustainability, this is the question of single or double materiality, and while many ESG ratings and disclosures focus solely on the former – looking only at how climate change and other ESG factors could negatively affect a given company or industry – the travel and tourism industry is a prime example of why we should apply a double materiality standard, even though it is challenging to gather the data and compute the metrics one would need in order to do so. In other words, we need to consider both (1) and (2).
Tourism and climate change
Let’s begin with the obvious: climate change is already affecting travel and tourism. Europe experienced some of the hottest temperatures on record in 2023, and a growing number of summer vacationers may be looking to travel to places where the daytime highs are less extreme, or are postponing travel to the off-season (not feasible if you have school-aged children and want to take them with you).
Of course, summer isn’t the only season for tourism. The debate over snowboarding versus skiing may become moot, as warmer winters means less snow, or none at all. That means ski resorts have shorter seasons or stay closed entirely, with huge effects on the local communities that depend on skiers to stay in their hotels and eat at their restaurants.
As we always seek to focus ESG discussions on economic considerations, we pause here for a moment to note that while tourists can be boorish and inconsiderate, they can also be “goodwill ambassadors” for their home country while respectfully learning about their host country’s culture, in addition to spending money on hotels, restaurants, tours, and souvenirs that can represent a substantial chunk of a local economy’s jobs and tax receipts. If that money starts to go elsewhere because a hotter planet makes tourism infeasible in some areas, there will be a meaningful economic impact.
As noted above, summers in southern Europe may already be too hot for some tourists; in fact, it is becoming a public safety issue. On July 14, 2023, Greece closed the Acropolis, its top tourist attraction, for five hours because temperatures were expected to reach 41C (almost 106 Fahrenheit). CNBC reports that according to a survey of travel plans conducted by the European Travel Commission, the number of tourists planning Mediterranean vacations declined by 10 percent in 2023 compared with last year, while the Czech Republic, Bulgaria, Ireland, and Denmark, all countries with lower average temps, became more popular. Eight percent of survey respondents cited possible extreme weather conditions as a factor. There is a real question as to whether southern European countries will continue to attract the summer crowds that have been spending money to fill hotels, bars, and restaurants since COVID restrictions were lifted.
Modes of travel offer few “green” options
Pointing out the harmful impacts of travel is rarely a crowd-pleaser, but burying one’s head in the sand doesn’t help and awareness is a first step. Everyone who travels by airplane should know that the aviation industry is a significant contributor to climate change—air travel not only releases CO2 emissions, its effects on global warming from nitrogen oxide (NOx) emissions, vapor trails, and cloud formation are even greater. According to Transport & Environment, these non-CO2 effects contribute twice as much to global warming as aircraft CO2 and were responsible for two-thirds of aviation’s climate impact in 2018. Estimates show these emissions could more than double (versus 2019) by 2050.
If you’re thinking of taking a cruise, know that cruise ships contribute to global warming too. Business Insider reports that in 2022, CO2 emissions from cruise ships that visited European ports equaled emissions from 50,000 flights between Paris and New York. Amsterdam’s city council recently voted to ban cruise ships from docking at the city’s main terminal, saying the ships do not align with the city’s sustainability goals. A study of the cruise ship the Marella Discovery estimated that if the ship used 10 percent of its engine power, it produced the same amount of nitrogen oxide emissions as 30,000 trucks or 370,000 cars.
The cruise industry is aware of the need to make changes and has begun to invest in other sources of energysuch as liquefied natural gas and shore power that would allow ships to run on electricity while docked instead of burning diesel in their engines. However, while burning LNG produces less CO2, it can involve methane gas leaks that are far worse.
Upon arrival, tourists do more damage
The loss of biodiversity caused by climate change will have an increasingly negative effect on tourism. For example, warming oceans are causing bleaching events in coral reefs; as those reefs shrink, so does tourism related to snorkeling and scuba diving. Tourists put pressure on the resources in the countries they visit by increasing energy use and water consumption beyond what is naturally sustainable. This is often most egregious in places where those resources are already scarce, and hurts biodiversity when land use shifts from protecting natural habitats to accommodating tourists. According to The World Counts, the average golf course in tropical countries where fresh water is often scarce uses as much water as 60,000 villagers per year, along with 1,500 kilos of chemical fertilizers, pesticides and herbicides.
In short, tourism’s impact on most communities is a mixed bag – there are economic benefits, but also significant costs and risks of exploitation.
Sustainable/Eco-Tourism – helpful, but not enough
According to the UN World Tourism Organization (UNWTO) “sustainable tourism takes full account of its current and future economic, social and environmental impacts, addressing the needs of visitors, the industry, the environment and host communities.” That sounds great, and the idea appeals to a growing number of travelers.
Unfortunately, because more tourists are willing to pay more for a more sustainable travel experience, a number of hotels and other forms of lodging now advertise their “eco-friendly” credentials, but as with most industries, greenwashing is not uncommon. In some cases, a hotel may insert “eco-“ into its name and do little else to protect the environment and the community from the damage that tourism can inflict.
Truly sustainable travel would include the use of renewable energy and water conservation in tourist lodgings, green transportation, educated guides who are responsible for protecting the cultural and natural sites that tourists want to visit, and green agriculture to protect the land avoid the use of chemical fertilizers while providing local food to enrich the tourism experience.
But sustainable or eco-travel experiences are not a part of every tourist’s itinerary. The only way for the travel industry to be sustainable is to do what every other industry must do—seek out ways to reduce greenhouse gas emissions to help fight global warming, protect biodiversity, and support the communities where companies generate revenues by offering their services to tourists.
Taking cruises, visiting far-off locales, etc. is rewarding. Would we do it if it meant our children or grandchildren would not be able to visit those places because climate change and its impacts made it unbearable? That gives us all something to think about when planning our next trip.
Contact us to learn how OWL’s data can help to analyze sustainability risks for companies in the travel and tourism industry.