Improving Hotels' Operational Efficiency Through ESG Investment: A Risk Management Perspective

Though environment-social-governance (ESG) practices are increasingly prevalent in the business world, academic research about the impact of ESG on firms' efficiency remains in its infancy. In this study sampling 24 international hotel firms during the period of 2013-2019, we examine how ESG standards improve these hotels' operational efficiency obtained via data envelopment analysis (DEA). We further investigate how ESG can help manage a crisis by examining the period before and after the COVID-19 pandemic. Our results reveal that ESG can indeed enhance hotels' efficiency. Specifically, the social and environmental aspects are the most important factors that contribute to the operational efficiency of hotel firms. In the context of the COVID-19 pandemic, hotel firms with the best ESG practice can be more efficient than others, especially those that have very high environmental and social scores. Overall, our findings suggest that hotel firms should consider ESG investment, not only as an effective and sustainable strategy during normal times but also as a crisis management strategy to overcome unexpected crises that may arise in the future.