With environmental, social and governance (ESG) reporting becoming increasingly important for the social housing sector, Dominic Brady looks at what it is and how it affects social landlords. Picture: Getty
What is ESG?
ESG has become an ever-present acronym when it comes to private finance and investment. The term refers to environmental, social and governance-related factors which can be measured in an organisation so that investors can consider whether their investment has a wider social impact, rather than just generating returns.
With issues such as the climate crisis and gender pay gaps becoming an increasingly prevalent part of public discourse, ESG has become more important in the realm of private finance. With shareholders becoming more discerning about where their money is being invested.
How does it apply to UK social housing?
UK social housing has a big role to play when it comes to socially responsible investment. Where banks or other sources of private finance are looking to invest in organisations that yield social value, housing associations can certainly claim to do so as they provide affordable housing for people who cannot afford to buy on their own.
UK social landlords can also claim to fulfil the ‘E’ in ESG, with government demanding that all social housing stock must achieve an energy performance certificate rating of ‘C’ by 2035 and net zero-carbon emissions by 2050.
In both aspects, housing associations may represent a good, socially responsible investment which may lead to social housing bonds receiving strong interest from investors. The greater the interest usually means the better the price housing associations can secure for their bonds.
During the year there has been a spate of sustainability-linked bonds from individuals housing associations and aggregators. Just this week, Clarion, the UK’s largest housing association, priced a £300m bond at a coupon of just 1.25%. The funds from the bond will be used exclusively to develop new energy-efficient affordable homes.
What social landlords are doing about ESG?
The social housing sector has taken great strides in recent times to better present itself as a go-to source for ESG investment, with large housing associations, such as Optivo and Clarion, publishing their own ESG reports to help investors evaluate their credentials.
These reports feed into the wider Sustainability Reporting Standard for Social Housing that was launched this week.
The new standard, created by a working group of large associations and consultants from The Good Economy, aims to unify the way in which registered providers present ESG factors in their business, therefore making this information more accessible to investors.
The standard covers 12 core themes and has 48 criteria which align with standards in the United Nations’ Sustainable Development Goals, the Global Reporting Initiative, the Sustainability Accounting Standards Board, the International Capital Markets Association and the Loan Market Association.
So far, 61 organisations have signed up to the standard, including 27 lenders and investors and 34 housing associations.
Why is the new reporting standard significant?
The new standard is an important moment for the sector as it looks to capitalise on private finance seeking ESG investment.
The working group behind the new reporting standard estimates that the UK sustainable investment market is worth £2tn and is growing.
With the demand for affordable housing remaining a key issue for the UK, not least in the fall-out of the coronavirus pandemic, facilitating further investment in the sector will be crucial to building the homes that are needed.