ARTICLE

By Kenneth Siegel

In the face of scarcity, quality, and flooding concerns, water may become “the new oil” for many businesses

Written by Kenneth Siegel

Imagine you’re at a meeting and the topic of risk arises. You would naturally expect data security, labor, or safety to be among the first topics to come to mind. While those are top priorities at Starwood Hotels & Resorts Worldwide, I’m finding it harder and harder to ignore a risk that is far more basic.
Water.

Water management is a business, development, financial, community, and reputational risk that has very real and sometimes dire implications. On a larger scale, access to clean water is a human rights issue and a growing driver in global conflict.

Some even say water is the new oil.

Water as a Community and Reputational Risk

Starwood operates in communities around the world and brings valuable employment opportunities wherever it goes. However, at times, Starwood, like any other global company that enters a local community, can be seen as an outsider consuming local resources.

Additionally, some of our hotels, especially those in developing countries, may be located in areas where the economic contrast between the local population and the property or its guests is extreme. We are sensitive to this juxtaposition and have put into place many programs and efforts to help improve the lives of our associates and the communities in which we operate.

Reducing our resource use and communicating with our communities is part of how we address concerns and manage our risk. For example, recently, one of our properties noticed that its water use had increased dramatically over a short period of time. Upon investigation, management discovered that a nearby village had tapped into the line to obtain clean drinking water. This realization opened up a valuable dialogue between the hotel and community for this issue, which will last for years to come.

Mapping Water Risk and Business Growth

Instilling resiliency is vital for our growth. The company operates more than 1,200 hotels in about 100 countries and we must understand the nuances of our risk. In 2012, we began using the WRI Aqueduct Tool to map our water risk globally. What we found was alarming.

  • 47 percent of our properties are in areas at high risk for water quality
  • 51 percent of our properties are in areas at high risk of flooding
  • 49 percent of our properties are in areas at high risk of water scarcity

The risk of drought, flooding, sea levels rising, or lack of clean water are not just felt in the developing world, but also in areas such as California, where the governor initiated the state’s first-ever mandatory water restrictions in April. Mapping also showed us how many of our properties were in areas of dispute over water such as North Africa, South Asia, and the Middle East.

As we look to build more hotels, the issue of water—which had been a focus for our sustainability team—became part of our growth and development strategy. We had to rethink water.

Water’s Financial Risk for a Growing Global Company

With few owned assets, most being managed or franchised properties, the scope and complexity of tackling the overarching challenges that were uncovered by our risk analysis was extensive. We must appeal to hotel owners and general managers who operate under vastly different circumstances. Each property has different amenities—items such as pools, golf courses, and spas—and the ideas we generate need to target those specifics.

In 2009, we established what we call our “30/20 by 20” goals, which are to reduce energy use by 30 percent and water use by 20 percent by 2020 across all of our hotels globally, with a baseline year of 2008. Last year we added a 30 percent reduction in carbon emissions. Since that time, water use per hotel room has dropped more than 17 percent globally. Much of that reduction came from what we call “foundational initiatives,” which include items such as low-flow faucets and fixtures.

Foundational initiatives became our first step because they offer a low-barrier for properties, have an ROI of one or two years, and mitigate water risk while meeting our company’s conservation goals. It also makes good business sense. We project that foundational initiatives alone will save $1 billion across the system in less than 10 years. Given that utilities are the second largest expense behind labor for our industry, that savings is significant for us as we grow.

Some additional considerations we propose to properties to reduce risk and water use are fairly basic, but still important. We support choosing local flora to ensure that we’re not importing plants that require more water than the local climate can support. We also proactively think about pools and other water features on property. Other solutions have longer timelines.

Global and Local Risk Mitigation

We took a top-down and bottom-up approach to technology and partnership solutions. In some cases, we create global partnerships with industry leaders that create mutual benefit and may or may not require capital outlay at the property level.

We’re piloting an irrigation and property management system called WeatherTRAK by HydroPoint at four hotels, which has helped at least one property in particular cut its water use by 50 percent. The system allows real-time adjustments to resources based on weather, and has saved more than 307 million gallons of water and $2.1 million across the pilot properties. We also upgraded our global internal reporting system so that properties can monitor their resource use and catch leaks or uncover areas where they could optimize resources.

We’re also taking ideas that come out of specific properties in order to scale them as best practices across our system. One example is a liquid pool cover that prevents evaporation and heat loss from pools at The Phoenician, a Luxury Collection hotel.

At the W Retreat & Spa Maldives, the property initiated a number of changes in 2013 and 2014 that positively affected water and energy use while also enhancing the guest experience. Among its work, the property now creates an unlimited supply of its own fresh water through desalination equipment, making the property self-sustaining.

Together, Collective Benefit

Water is a very real risk for our associates, our business, and our communities. Together, our 250,000 associates from owned, managed and franchise properties can each make a small difference at work and at home to be part of something bigger.


Author Biography:
Cecile Zwiebach is a member of the Corporate group at Covington & Burling LLP in New York. Her practice focuses on Latin American cross-border transactions and technology transactions. She advises financial institutions, private equity firms, and companies in strategic mergers and acquisitions. She also advises a wide range of clients in connection with IT infrastructure matters, including the negotiation of information technology services agreements and global ticket inventory distribution arrangements as well as data collaborations and various projects relating to proprietary rights to data, data privacy, and data security.