As the calendar turned to 2023, the Travel & Tourism sector found itself in a situation reminiscent of a marathon runner hitting the final six miles of the race. It had persevered through nearly two years of the COVID-19 pandemic, only to face an unexpected surge in travel as pandemic restrictions eased. This surge, driven by people eager to escape quarantines and lockdowns, presented a new challenge for an industry still grappling with workforce shortages.
However, the industry’s next hurdle is the rapid shift from voluntary to mandatory sustainability reporting. The big question is whether the sector is adequately prepared for this transition.
In 2024, the first wave of stricter mandatory regulations for sustainability disclosure will take effect, as new European Union sustainability rules require the largest companies operating within the EU to collect data on greenhouse gas emissions. These regulations, including the Corporate Sustainability Reporting Directive, also mandate the submission of annual transition plans aimed at reducing emissions. These plans must align with the target of limiting the Earth’s temperature increase to 1.5 degrees Celsius, as set by the 2015 Paris climate agreement. Progress towards these goals will be made available to corporate stakeholders and the public on an annual basis.
The past couple of years have seen a flurry of activity in the realm of sustainability. Not only has the EU introduced new mandatory regulations, but countries such as the United Kingdom, Australia, Canada, India, and Singapore have also imposed their own sustainability reporting requirements. The United States Securities and Exchange Commission is expected to follow suit in the coming months with Climate Disclosure Requirements, making previously voluntary emissions disclosures mandatory for publicly registered U.S. companies. Most recently, the International Sustainability Standards Board (ISSB), affiliated with the influential International Accounting Standards Board, has introduced new global standards, which are set to become the international norm for sustainability accounting. These standards call for the disclosure of Scope 1, 2, and 3 emissions, following the Greenhouse Gas Protocol for corporate accounting.
Given this deluge of new mandatory standards, it is high time for the Travel & Tourism sector to assess its level of preparedness. After surveying sector members to compile a report scheduled for release in the fourth quarter, the World Travel & Tourism Council (WTTC) and Oliver Wyman have concluded that there is still substantial work to be done before the sector can meet the upcoming challenges.
A groundbreaking study by WTTC reveals that Travel & Tourism is currently responsible for 8.1% of global greenhouse gas emissions. While many of the sector’s major companies have established emission-reduction targets for 2050, an equal number are just beginning to contemplate how to address climate change in their business strategies. This diversity in preparedness highlights the wide range of understanding and readiness within the Travel & Tourism sector regarding the impending reporting requirements.
Navigating the compliance landscape will be a complex undertaking, particularly for a sector with operations that span multiple countries and encompass enterprises ranging from small to large, employing anywhere from just a few individuals to thousands. Even within a single jurisdiction, the challenges of managing multiple subsidiaries, suppliers, and partnerships are daunting.
These challenges become even more pronounced considering that 80% of sector members are small and midsize companies with limited resources to invest in new personnel and technology. Recognizing this, WTTC and Oliver Wyman will incorporate tools in their upcoming report to assist the sector in navigating the requirements.
One key concern raised by most survey participants is the sector’s limited resources, capabilities, and expertise to meet the demands of the new regulations. In the past, many Travel & Tourism companies assigned sustainability personnel to branding, marketing, and operational matters rather than accounting or data collection. However, compliance with these rigorous sustainability disclosures goes beyond mere accounting; it necessitates a broader organizational cultural shift. Sustainability teams alone cannot tackle the impending challenge. More education and internal expertise on sustainability are required across organizations.
Another challenge confronting the sector is data collection. The sector’s extensive and fragmented value chains make it challenging not only to assemble data in a timely manner but also to ensure the accuracy of emissions information, especially concerning Scope 3 emissions generated by a company’s upstream suppliers and downstream users. In the absence of sector-specific guidance, some form of sector-wide collaboration may be needed during the initial years.
Companies, in general, are wrestling with the need to balance the investment required for new data collection capabilities with ongoing investments in emission reduction initiatives and other environmental, social, and governance goals. Simultaneously, organizations are compelled to allocate additional funds for hiring new personnel and expanding operations to meet the surging demand.
Whether companies are fully prepared or not, the regulations have become a reality. This is especially crucial for the largest companies and networks in the sector; the time for action is now.
The bright side for the Travel & Tourism sector is the potential benefits it can gain from efforts to preserve nature and maintain a hospitable climate on Earth. Few sectors will face as many challenges from the increasing frequency of severe weather events, environmental crises, and the decline of Earth’s biodiversity. These challenges should serve as strong motivation for companies to go beyond mere compliance and actively engage in sustainability initiatives.
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