ESG: a lens on the Leisure sector
In the light of COP26, this week’s Retail Note revisits the thoughtful and insightful ESG section of Knight Frank’s recent Leisure research report, written by my colleague Emma Barnstable.
7 minutes to read
Key Messages
- Leisure operators have been tackling ESG related issues for years
- Very active in ensuring fair and transparent supply chain standards
- Proactive in other areas as diverse as waste management and equal gender pay
- UK restaurants are still responsible for carbon emissions larger than Costa Rica
- Shift towards enhancing sustainability of interior fit-outs
- Key initiative, given that frequency of refurbishments in Leisure are more frequent
- Nando’s a key protagonist through its ‘Green Fit Out Guide’
- Increased regulatory pressure is inevitable and Leisure must play its part
- Huge merit in occupier/landlord collaboration in collectively addressing ESG issues.
COP26 has inevitably, but rightly, dominated virtually every piece of narrative this week. Plenty of positive direction generally, but equally, plenty of “greenwashing” too. In any event, a good time to review Knight Frank’s perspective of ESG specifically in the Leisure sector. What follows is a summary of a full article from our recent Leisure: responding to an experiential crisis report, written by my colleague Emma Barnstable.
A trendy new term - but actually nothing new for Leisure
Although ESG within the Leisure sector may appear underdeveloped on the surface, many of the subjects encompassed may actually be considered bread and butter for the operators themselves, particularly those within the hospitality space. From ensuring fair and transparent supply chain standards, to equal gender pay and waste management – hospitality operators have been juggling their social, environmental and governance responsibilities for decades.
So what has changed? ESG issues have certainly mainstreamed within the wider psyche. A wider range of stakeholders are appreciating the interrelations which exist between people, place and planet, and are having open discussions on issues like mental health and wellbeing.
The E of ESG has made significant progress in this regard. Climate conservation has moved from kooky to cool – and no longer the domain exclusively of the activist. For example, the popularity of Netflix’s ‘Seaspiracy’ – which documented impacts of the fishing industry - caused a diverse range of consumers to rethink diets and prompt restaurateurs to provide new offerings such as vegan fish burgers (By CHLOE) and vegan tuna pizza (Purezza).
But with UK restaurants still responsible for carbon emissions larger than Costa Rica (according to the Sustainable Restaurant Association), operators must redouble their efforts now that much of the low hanging fruit has been picked. With growing grassroot consumer and top-down regulator pressures, Leisure operators must step up efforts to implement more systemic change to support transition to a lower carbon economy.
Sustainable fit-outs
Ensuring a more sustainable fit-out is just one way landlords and operators can help achieve this. With fit-outs responsible for a significant proportion of a building’s embodied and operational carbon emissions, and given the frequency of which refurbishment is required within the industry – either to accommodate new operators or refresh tired concepts - minimising the harmful impacts of installation will go a long way in creating change.
However, although ensuring sustainability of fit-out works is often a point of compliance, there are few established methods available to guide tenants in achieving their ESG goals.
RICS’ ‘SKA’ rating is the first UK rating specifically tailored to measuring the sustainability of commercial fit-outs and provides a benchmarking tool to ensure best practice. By advising use of the most environmentally friendly methods and materials, the rating challenges operators to consider even the most minute of details. The benefits of using the rating are far reaching. Ensuring legal compliance; improving energy efficiency to enhance profitability; and even raising employee engagement through the creation of both high-quality and ethical space.
The rating also serves as an effective means to help landlords assess the quality of fit-out achieved by tenants in comparison to the wider industry. Which, in turn, they can showcase in the reporting of their portfolios to highlight their endeavours as a sustainable landlord.
Several Climate Action Playbooks and Fit-out Guides are now being produced by organisations to help Leisure operators manage their impact. The Sustainable Restaurant Association’s Net Zero Pubs & Bars Action Playbook provides a plethora of suggestions from retaining original building features, to leasing restaurant furniture and digital apps such as ‘Too Good to Go’ to reduce food waste, while at the same time recouping costs and attracting new footfall.
Nando’s: a surprising case study?
The scale of major restaurant and pub operators mean that even the smallest decisions to improve the environmental and social impacts of their outlets can provide scope for substantial impact. Nando’s has made bold decisions to improve the impact of its entire 450 estate with the pursuit of its very own ‘Green Fit Out Guide’. This has been informed by the purpose-built Cambridge Retail Park restaurant which has achieved the highest possible fit-out rating SKA Gold.
The restaurant has been constructed as a green technology testbed to inform the creation of the fit-out guide. Rather than rely on claims of manufacturers, the site captures data on what technologies work within its restaurant environment, such as heat extracting canopies over its kitchen grills, to gauge viability for wider rollout. This extends to the practicality of the technology, such as how easy it is for staff to clean and whether it interferes with the handling of saucepans. As well as being powered by 100% renewable energy, it even features lamp shades made from mushrooms. With the aim of upgrading 50 restaurants per annum, the chain has a longer-term aim to disseminate learnings with the wider industry. Nando’s efforts exemplify what every business should be looking to achieve: moving its pursuit of sustainability beyond a niche experiment.
Regulation and collaboration
With the UK government committed to net zero by 2050, its roadmap toward compulsory sharing of climate-related information under the Task Force on Climate Related Financial Disclosures (‘TCFD’) means that Leisure operators must work to improve the disclosure of their ESG credentials.
Collaboration across the industry will be essential in achieving this. The Zero Carbon Forum is one such initiative paving the way for the industry to move towards its targets faster and more cost effectively than operators working alone. This year, it teamed up with 21 hospitality operators (including the likes of KFC, Greene King, Marston’s, Azzurri Group, Mitchell & Butlers) and several major trade associations, such as UK Hospitality and the British Beer & Pub Association. Given the preoccupation with more immediate threats to operations in the last 18 months (not least, the battle for survival), and the high costs of pursuing ambitious ESG initiatives, the opportunity to share risk and reward is as welcome as it is prudent.
Practicing Partnership: The Crown Estate and Sustainable Restaurant Association
As major stakeholders, landlords will play a significant role in smoothing the journey to net zero for Leisure operators. The Crown Estate has demonstrated its ability to fully support the ESG ambitions of its tenants through the provision of a comprehensive Sustainable Fit-Out Guide, specifically for Leisure and Retail occupiers. Suggesting best-practice relating to materials, waste, water and operational carbon, its recommendations dovetail with both SKA and BREEAM ratings.
More recently, it has been targeting food waste of restaurant tenants through a comprehensive audit, inspired by the United Nations Sustainable Development Goal 12. In 2019/20 it took this one step further with the Regent Street & St James Food Waste pledge in partnership with the Sustainable Restaurant Association to drive a 25% reduction by May 2020. Not only has the commitment provided tenants with a competitive edge through its appeal to increasingly eco-minded diners (it being the first of its kind in the UK), it has also generated cost savings of up to £6,000 a year.
Key conclusions
Within the Leisure market, much has been done to address ESG issues. But so much more needs to be done. Actions speak louder than words. Regulation will tighten and enforce change. But change is often best effected collaboratively, not just between occupiers and landlords, but all stakeholders.
For the full article please refer to Leisure report