What Are Hotels Missing When Climate Risk and Social Impact aren't on the Balance Sheet?

New research by ShareAction reveals the world’s largest insurance companies are failing to meet the scale and urgency of the climate, nature and social crises that threaten people and ecosystems.

That failure doesn't stay contained to the insurance industry — it flows straight through to the assets insurers price, including hotels. What happens once risk is priced?

Operators blind spot

Sustainability-related risks can have significant physical and transitional risks that have far-reaching impacts on various industries, including the hospitality sector.

The hospitality industry, which encompasses hotels, resorts, restaurants, and other tourism-related businesses, is particularly vulnerable to these risks due to its reliance on environmental stability and favorable climatic conditions.

Transitional Risks can include:

1. Economic downturns or recessions, which can reduce demand for hotel rooms and lower room rates.

2. Political instability or unrest in a country or region, which can decrease tourism and impact hotel revenue.

3. Changing travel patterns, such as a shift towards alternative accommodations like vacation rentals or Airbnb, which can reduce demand for traditional hotel rooms.

4. Environmental and climate change risks, such as natural disasters or extreme weather events, which can disrupt travel and damage hotel infrastructure.

5. Technological advancements, such as the development of new booking platforms or online travel agencies, which can disrupt traditional hotel distribution channels and impact revenue.

Physical Risks can include:

1. Natural disasters such as hurricanes, earthquakes, floods, wildfires, and landslides, which can damage hotel properties and disrupt operations.

2. Building and infrastructure failures, such as structural collapses or fires, which can cause property damage and endanger guests and staff.

3. Security risks, such as terrorism, crime, or civil unrest, which can threaten the safety of guests and staff and damage hotel properties.

4. Health risks, such as pandemics or disease outbreaks, which can affect travel and hotel demand, as well as impact the health and safety of guests and staff.

5. Supply chain disruptions, such as the interruption of food or energy supplies, which can impact hotel operations and guest satisfaction.

A peer-reviewed panel study of nearly 5,000 Texas hotels tracked over two decades found that extreme weather significantly reduced hotel performance — not as a one-off catastrophe cost, but as a persistent drag, with droughts, wildfire, hail, and severe wind identified as the strongest predictors. And the catastrophes themselves aren't small: the 2025 Los Angeles wildfires alone caused an estimated $76 billion to $131 billion in property and capital losses, on top of roughly $79 billion and $34 billion in total costs from Hurricanes Helene and Milton in 2024.

Hospitality assets in high water stress

≈ 36 % by 2030

WRI Aqueduct Water Risk Atlas

What the peer-reviewed research actually shows

• Temperature has a direct, quantified profit signature. A study published in Environmental Research Letterslinked monthly financial records from 1,752 U.S. hotels (2016–2018, roughly 3.2% of the national hotel stock) to ground-station weather data. It found that any deviation from an 18–20°C monthly average temperature reduces hotel profit rate — driven by fewer guests, lower revenue, and higher cost per occupied room from increased electricity and water use. The effect was smaller for higher-chain-scale properties, meaning independent and limited-service hotels absorb more of the hit.

  
  

• The damage compounds over decades, not just in disaster years. The Texas panel study (4,928 properties, ~20 years of data) found the performance drag from extreme weather was persistent rather than a single bad quarter — though it also found smaller and independent hotels with more operational flexibility recovered faster than larger, more bureaucratic chains.

  
  

• Guest willingness-to-pay shifts under weather stress

  
  

  Research on abnormal weather and hotel firm performance found that unusually hot temperatures pushed up room rates but shortened stays, while abnormal rainfall increased both rates and length of stay.

  
  

• Tourism demand elasticity varies sharply by geography.

  
  

  A meta-analysis of 290 elasticity estimates across 34 studies found that climate change is likely to suppress tourism demand disproportionately in tropical and arid regions.

  
  

• Transition risk is already discounting real estate values

  
  

  One industry study of European pension funds found 40% reported 21–30% valuation depreciation from "brown discounting".

Projected asset climate‑exposed premiums

≈ +20 % by 2030

Swiss Re Institute, EIOPA climate stress analyses

Where it hits ROA that never gets modeled

ROA is net income over total assets. Climate risk erodes both the numerator and the denominator, usually without anyone re-running the model:

• Revenue volatility.

  Hotel closures, cancellations, and destination-level demand shocks reduce RevPAR

• Rising insurance and financing costs.

  That's a direct hit to the return side of ROA that most hotel finance teams attribute to "market conditions" instead of climate exposure.

• Deferred capex that becomes forced capex.

  Roofing, drainage, HVAC, and building-envelope work that gets pushed year after year eventually arrives as an emergency repair.

• Asset devaluation

  Brown discounting pattern documented in European commercial real estate is an early version of what's coming for hotels.

• Regulatory catch-up costs.

  Regulations such as CSRD in Europe enforce requirements to inventory that has no infrastructure to build , collect and automate data points and data flows in a transparent and efficient manner in hotel operations.

What accounting for it actually looks like

It is fundamental that physical and transition risk are in ordinary underwriting inputs, the same way occupancy trends or labor costs are included.

• Run a location-specific hazard assessment for each property

• Get ahead of the insurance cycle

• Sequence capex around resilience, not just aesthetics

• Build a transition-cost forecast

• Report the hazard-adjusted numbers internally

• Add social impact (on local communities, workforce and supplier chain disruption) and social return on investment

• Consider context-based material events across that would influence either a) the probability of realisation or b) alter the revenue or cost impact of realisation.

• Assess the potential material impact on the likelihood or magnitude of the event either assuaging or aggravating stakeholders’ issues of concerns, based on the input and guidance of the manager responsible for these potential risks or opportunities.

• Calculate the potential material impact (eVAS) for the firm of addressing each issue of stakeholder concern and prioritise issues and stakeholder engagement accordingly.

• Highlight, in engagement with stakeholders, those tangible incremental efforts to address issues of concern that the company could take, as well as pre-existing contributions the company is already making to stakeholder issues of concern

Bottom Line

Climate Risk and social impact inaction erodes financial performance

It reduces Net Operating Income (NOI) through lower occupancy, higher utility costs, rising insurance premiums, increased maintenance, workforce, poor governance and unexpected capital expenditure.

Over time, declining NOI reduces property values. The combined effect ultimately erodes Return on Assets (ROA) because asset income and value deteriorate.

Premiums, deductibles and climate adjusted cap rates eroding asset values faster than incremental RevPAR gains can compensate.

Sources

• He, B.J. et al., "Loss of profit in the hotel industry of the United States due to climate change," Environmental Research Letters, 2019

• "Hotel performance under extreme weather: a contingency perspective on organizational resilience," Journal of Sustainable Tourism, 2026

• "Effects of Abnormal Weather Conditions on the Performance of Hotel Firms," hospitality finance research

• Zhou et al., meta-analysis of climate-tourism demand elasticity (290 estimates, 34 studies), 2024

• Catalyst Group / European pension fund survey on brown discounting in commercial real estate

• Bloomberg Intelligence, "Ten data insights showing the continued rise of climate risk," 2026

• OECD, Future-Proofing Real Estate Investment: Place-Based Risks, 2025–2026

• Resources for the Future, "The Evolving View of Climate-Related Financial Risks in the US Financial Sector," Dec. 2025

• EDHEC Climate Institute, "Do Sustainability Standards Show Measurable Climate Risk Reduction in Hotels?"