As an asset management company, we believe sustainability is fundamental to creatinglong-term value forHoshino Resorts REIT, Inc. (HRR). As one way to communicate this concept more clearly, the sustainability webpage of HRR's website was renewed. In this article, Karasawa of the Corporate Planning & Administration Department, who was in charge of renewing the sustainability webpage, spoke with Kikuchi of the Sustainability Promotion Office. We will share the perspectives of Hoshino Resort Asset Management Co., Ltd. employees on sustainable growth.

Recognize social and environmental issues as
material operational issues

Karasawa: To begin with the conclusion, you believe that sustainability is not a defensive cost, but an investment that enables HRR to continue being chosen and to continue creating long-term value. Today, I’d like to ask why you think that way.
First, with soaring crude oil prices, food insecurity, ongoing conflicts in various regions, and natural disasters such as large-scale forest fires, the current global situation is extremely uncertain. I feel that these social issues and climate change are no longer matters of the distant future but have entered a stage where they directly affect our daily lives, corporate activities, and the assets we manage.

Kikuchi: That’s right. In the past, sustainability-related disclosure was aimed mainly at institutional investors, and some viewed it as not something that directly generates profit. But now, it is no longer possible to look away on the grounds that it does not directly lead to profit. Environmental and social issues were once considered to be outside the scope of business, but now they have become prerequisites that cannot be ignored in order to continue operating a business.

Karasawa: I see. That is precisely why we view sustainability not as part of social contribution, but as a material operational issue, and regard it as a prerequisite for protecting and enhancing the value of the properties we hold over the long term. The renewal of our sustainability page is also a means of conveying that way of thinking more clearly to our investors.

The preconditions of the tourism industry are
beginning to change

Karasawa: The tourism industry cannot remain unaffected by this change either. This is because what we operate are hotels and ryokan, which are precisely assets of the tourism industry. What do these social and environmental changes mean for the tourism industry?

Kikuchi: Travel is,at it’s core, the experience of engaging with a destination’s nature, culture, and way of life. In other words, it is an industry that is built on the continued existence of local communities and the environment. Therefore, the decline of local communities due to population decreases and aging, the crisis in passing down traditional culture, rising energy prices, and the impact of climate change on the natural environment are not merely social issues; they directly affect tourism demand, local appeal, and the very business foundations of the properties we own. For us, the sustainability of communities and the environment is a theme that directly affects whether a property can maintain its appeal and earning power into the future—in other words, it lies at the very core of asset management.

Karasawa: I believe there are two perspectives in the tourism business. One is the perspective of investors who expect medium-to long-term value creation, and the other is the perspective of guests seeking experiences unique to that location. We, as an asset management company, while standing on the side of investors, also view properties through the lens of whether they are facilities that continue to be chosen by guests. To continue being chosen over the long term while coexisting with local communities and nature—that is the competitiveness of tourism assets going forward, and it is also what we want to emphasize in managing HRR.

Kikuchi: And the very mechanisms that support that competitiveness are now beginning to change as well.

From “cost” to “investment” in environmental initiatives

Kikuchi: Going forward, we are in an era in which it is difficult to achieve sustainable growth through conventional cost reduction alone. Many of the properties owned by HRR also include facilities with hot springs and pools, which at first glance may appear to run counter to the trend toward sustainability. In fact, moving away from heavy fuel oil entails costs in the short term, but in the long term it is a very important management issue.

Karasawa: So, as an asset management company, you are considering incorporating the concept of internal carbon pricring (ICP) into the management of HRR, correct? ICP is a mechanism in which a company sets its own internal price on carbon dioxide emissions and evaluates environmental initiatives not merely as a burden, but as an investment that reduces future risk and strengthens competitiveness. So, what changes when this is used?

Kikuchi: Using this way of thinking changes how even environmentally friendly equipment that had previously seemed overpriced is perceived. This is because it is positioned as a rational investment to prepare for future cost increases and tighter regulations.

Karasawa: In addition, to what extent have the initiatives Hoshino Resorts has pursued since its founding—such as installing hydroelectric power plants, using geothermal heat, energy-efficient architecture, and energy self-sufficiency through biomass recycling—helped curb greenhouse gases (GHGs) and protect future value? Could the ICP concept also provide clues for quantitatively demonstrating its results?

Kikuchi: There is no point in merely following external trends when it comes to new frameworks such as ICP. What matters is calmly envisioning future scenarios and engaging in thorough, repeated discussion within the asset management company. Only then will environmental initiatives take root not as “externally imposed” standards, but as operational policies that we ourselves share and promote.

Karasawa: In other words, efforts toward sustainability are not something that must be done, but rather an operational strategy for connecting responses to environmental and social issues to business growth and for continuing to be chosen by stakeholders such as investors, guests, and local communities.

Coexistence with local communities creates
facilities that continue to be chosen

Kikuchi: Just like environmental initiatives, coexistence with local communities is also an important condition for a facility to continue being chosen over the long term. A clear example of that is OMO7 Kochi.

Karasawa: OMO7 Kochi is a facility that has been reborn through rebranding.

Kikuchi: That's right. At this facility, approximately 50% of the staff are people who had been living in Kochi Prefecture before operations began (including those who had relocated there). People who have a firsthand understanding of the local language and culture are responsible for day-to-day customer service and creating experiences. Furthermore, by incorporating Yosakoi, one of Kochi’s representative cultural traditions, into the guest experience every day, we create opportunities for guests and local residents to encounter one another in their daily lives.

Karasawa: Efforts to turn these unique local attractions into the value of the guest experience become a source of irreplaceable competitiveness that cannot be replicated in other regions, and as a result, lead to facilities that continue to be chosen.

Kikuchi: It is Hoshino Resorts, which is responsible for operations, that creates that kind of value on the ground. And HRR is responsible for holding and managing the assets that support it over the long term.

Karasawa: That's right. HRR and Hoshino Resorts have a relationship of mutual coexistence and prosperity, in which the roles of ownership and operations are divided, and both parties grow together rather than one side alone. That is precisely why we, as an asset management company, invest in assets that generate value in this way, bringing together Hoshino Resorts’ strengths in hotel operations and our expertise in real estate management to enhance the competitiveness of HRR over the long term.

Aiming to contribute to society while also achieving profitability

Karasawa: We will create long-term value by achieving both contributions to society and economic value (profits), without sacrificing either one. This is not merely a philosophy; it is also an operational strategy that maintains and enhances local appeal and, by continuing to be chosen by guests, leads to improved competitiveness and asset value for a property.

Kikuchi: Facilities continuing to be chosen ultimately lead to the strength of HRR’s earnings base. Sustainability is also directly connected to returns for all of our investors.

Karasawa: The same could probably be said from a financial perspective as well.

Kikuchi: Yes. For example, HRR uses green loans, which are loans whose use is limited to the environmental field, for assets recognized as meeting certain environmental performance standards (assets that have obtained environmental certification). This diversifies fund raising methods and also helps strengthen the financial base.

Karasawa: Addressing environmental and social issues is no longer a cost, but an investment to maintain and enhance future competitiveness and asset value. Finally, could you share that perspective once again?

Kikuchi: We believe that our sustainability initiatives are precisely what will become the source of the value that encourages continued long-term investment in HRR. Through sustainable tourism, we will strive for medium- to long-term value creation.