We’ve all heard this claim by marketers – Consumers crave responsible travel choices that are socially responsible, environmentally conscious, and economically beneficial to local communities. However, even with all the surveying and statistics that back up this claim, the tourism industry has been reticent to ingraining sustainability into their operations. Why? One reason is because there is no reliable benchmarking data that shows exactly how greening a tourism company or destination’s offering will affect the financial bottom line.
Let’s face it. Tourism businesses and destination have to make investment decisions on a regular basis. Whether it’s the development of new products or new incentives to hire the best guides or the creation of the best marketing campaigns that will capture the imagination (and wallets) of travelers, investments are constantly occurring.
For tourism businesses that must prioritize strategies, owners and other tourism stakeholders must understand, beyond reading the occasional anecdote about an individual company’s experience, the actual return on investment (ROI) of going green.
Certainly, for larger tourism companies or ones with owners or employees with financial or accounting backgrounds, my research has shown that if ROI was calculated, it was based on capital investments made into operations. In other words, projects such as renewable energy, water conservation, waste management, food and beverage sourcing were what was considered sustainable investments. However, the consistent issue was that ROI, calculated under those parameters, was negative for at least two years.
So, as a tourism business owner, would you want to wait two years or more to break even on your green investment? Probably not, because other investments into your products, staff or customers might could yield higher returns more quickly.
This is one important reason there has been resistance within the tourism industry to giving sustainability a closer look.
However, there is a flaw in how ROI is being calculated. It is not holistic. Just looking at operational investments misses up to 40% of the calculation.
Specifically utilizing an environmental scorecard approach for measuring ROI, I built upon these operational elements by:
- Collecting existing benchmarking data (available through published academic dissertations and industry research),
- Expanding the model to include applicable investments, savings and incremental revenue opportunities in sustainability to employees, communities and customers,
- Adding additional data such as country specific household multiplier effects and productivity rates, and
- Attaching a weighted impact to each component.
As a result, Fáilte Ireland commissioned a pilot study to compile actionable information about the Operational, Community, Customer, and Employee ROI elements that affect sustainable tourism in Ireland.
Tourism businesses were asked to provide both quantitative data (found on their financial statements) and qualitative data concerning their perspectives about sustainability. In exchange for this data, each participating company was provided with a personalized ROI outlook along with specific recommendations about how to increase their ROI.
The aggregated results showed that for the participants in the study, while Operations ROI remains negative for at least five years, accounting for the additional sustainable investments made by these Irish tourism businesses toward local communities, employees and customers make up for difference netting to a positive ROI of 1557 in Year 1.
Aggregated ROI Results for Irish Sustainable Accommodations
Although at a lower rate than for accommodations, sustainable day and multi-day guiding companies also experienced an overall positive ROI of 355 in Year 1.
Aggregated ROI Results for Irish Guiding Companies
After consolidating and analyzing the results, the data also revealed that for both accommodations and guiding companies, the triple bottom line ROI driver was providing clear and direct information to customers about sustainability.
Essentially, it is the true strategic partnership potential of sustainability that was missing from existing ROI models, and, just as the pilot study revealed, when these parameters are included and weighted appropriately, the ROI calculation shows an entirely different portrait.
So, what does this mean for individual businesses and destinations? With this ROI model, for the first time, organizations can:
- Conduct self-assessments against sustainability standards,
- Receive a 5 Year ROI outlook of how specific investments affect the bottom line,
- Lower financial risk,
- Continuously monitor ROI targets, and
- Prioritize sustainability investments.
As H. James Harrington, who originated IBM’s internal benchmarking procedure and developed the Five Pillars of Organizational Excellence once said, “Measurement is the first step that leads to control and eventually to improvement. If you can’t measure something, you can’t understand it. If you can’t understand it, you can’t control it. If you can’t control it, you can’t improve it.”
Let’s make responsible tourism more insightful for all!
Irene N. Lane is Founder & President, Greenloons; Chair of the Market Access Working Group of the Global Sustainable Tourism Council, which helps to identify marketing opportunities and solutions for this tourism niche; a member of the Scientific Council of the Instituto de Tourismo Responsable (ITR); and a working group member of the Sustainable Tourism Certification Alliance Africa.