Linking sustainability and finance in the Travel industry
Climate change, nature, and the travel industry
Companies are under increasing pressure from their stakeholders to prove their business models are not just profitable, but also sustainable. This is especially the case for the travel and tourism industry, given the environmental impacts of the aviation and cruise companies. Efforts to find solutions to the climate crisis pose material risks to the sector’s operations and long-term growth. However, if taken seriously, decarbonisation also presents significant opportunities for value creation. With higher consumer and regulatory expectations for more transparency, the question has moved from ‘should we act’ to ‘how can we make the necessary strides toward sustainability to gain a more competitive advantage?’. Demonstrating a purpose-driven organisation should form the basis of all strategic business decisions as investors, regulators, and consumers increasingly demand companies to be proactive about how they integrate sustainability into their strategy.
To communicate climate-related risks and opportunities to stakeholders, sustainability must be integrated across all firms’ functions through its Chief Financial Officer (CFO). Historically, pursuing sustainability has been separate from the finance operations of a business, usually exclusively the responsibility of the Chief Sustainability Officer (CSO). However, sustainability roles continue to evolve.
The role of the CFO
CFOs and finance departments have a critical function to play in driving value and reducing risk. CFOs not only ‘hold the purse strings’, they also control the systems and processes required for their organisations to report on their environment, social and governance (ESG) performance.
Investors increasingly demand the same rigour in measuring and reporting sustainability metrics as they do for financial information. As a result, the CFO’s role in driving reporting has become critical in the pursuit of net zero. Within the travel sector, reporting of Scope 3 emissions is a considerable challenge that the finance function can help address. Travel and tourism services are the result of a complex and extended global value chain, making it harder to trace and reconcile all the elements of the supply chain in the sector. CFOs’ capabilities can simplify the measurement and reporting process of the environmental impact of the travel and tourism services. By integrating sustainability across all business functions and including non-financial data in existing reporting processes, they are able to track and measure progress against ESG targets, quantify transition plans and facilitate more informed decision-making.
Appreciating how to link finance and sustainability can create value for all stakeholders. With sustainability decision-making and strategy embedded into every function of a business, the delivery of net-zero objectives can be accelerated. Given companies commitments, including the Glasgow Declaration on Climate Action in Tourism, meeting those targets is critical to avoid reputational risks and financial costs.
As a CFO handles financial and non-financial data, reports can draw on a single source, increasing the confidence and frequency of both internal and external reporting. Given 78% of consumers are more likely to remember companies with a strong purpose, effective reporting is critical in supporting businesses sustainability claims.1 However, unless the sector collects and manages data beyond traditional capabilities this will be very difficult to achieve. Achieving sustainability requires the balancing of risk and opportunity in both financial and non-financial terms which fall under a CFO’s remit.
Given the dependency of the travel sector on climate and nature, the material risks of not acting cannot be ignored. Forests, rivers, coral reefs, and other ecosystems underpin visitor experience, protect hotel infrastructure, and sustain supply chains. This directly affects business viability and the sector’s long-term growth.
In total, CFOs not only ensure that their organisations meet their ESG targets profitably, they are also becoming the leaders and partners in their organisations' pursuit of value creation and are contributing to a more sustainable future.
Where do you stand?
- Have you included ESG into your financial planning? For example:
- Have you integrated your ESG goals and KPIs into scenario modelling to identify the steps necessary to reach targets and business performance impacts?
- Have you included ESG in your target setting and budgeting processes and are you assessing performance to determine if adjustments are required?
- Have you considered the operating model to facilitate your consideration of ESG risks and opportunities, and how to enable organisation-wide action to deliver against your ESG strategy?
- Is your executive and/or management remuneration linked to climate-related targets?
- Do you have the tools to collect ESG data and does it interface with your company’s finance systems?
Again, it is nota question of should, but a question of how. How can we, as a sector, meet our sustainability objectives while gaining a competitive advantage in the process? The answer lies in linking sustainability to finance.
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