A fundamental reshaping of finance is already happening

Comment06 Feb 2020Sarah Williams

BlackRock chief Larry Fink has cautioned that “companies, investors, and governments must prepare for a significant reallocation of capital”. This is already taking place in social housing financing, writes Sarah Williams

Sarah Williams

Sarah Williams is editor of Social Housing

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A fundamental reshaping of finance is already happening #ukhousing #socialhousingfinance

.@BlackRock chief Larry Fink has cautioned that “companies, investors, and governments must prepare for a significant reallocation of capital”. Sarah Williams argues this is already taking place in social housing financing #ukhousing #socialhousingfinance

“Purpose is the engine of long-term profitability,” according to the latest iteration of Larry Fink’s annual ‘Dear CEO’ letter.

In the circular, published two weeks into the new year, the chair and chief executive of global investment manager BlackRock set out his belief that a “fundamental reshaping of finance” is approaching.

“Companies, investors, and governments must prepare for a significant reallocation of capital,” he added.

Mr Fink, whose company manages trillions of dollars of assets globally, argued that investors are increasingly recognising that “climate risk is investment risk”, and that “actions that damage society” will ultimately destroy shareholder value.

He added: “[Because] capital markets pull future risk forward, we will see changes in capital allocation more quickly than we see changes to the climate itself.”

Housing associations, for as long as they have borrowed, have used that finance to fuel their social purpose – whether in the form of grant, loans, capital market issues or other. What has started to develop, as readers of these pages will be aware, is the way those two elements – purpose and finance – are linked, with an expectation of greater transparency and accountability on the part of both the borrower and the lender.

This includes funds with a specific focus on environmental, social and governance considerations increasingly eyeing – or being eyed by – housing association and council borrowers. It extends, too, to the adoption of new metrics for measuring what social and sustainable impact actually is.

“The recently reopened Grenfell Tower Inquiry stands as a powerful reminder of the cost of forgetting the people who social housing is for”

A growing number of lenders, not only new entrants to the sector but also more established players, are looking to prioritise sustainability in their deals with housing associations through sustainability-linked loans.

And the strong result on Clarion’s – and the sector’s – very first ‘sustainable’ bond, while supported by a number of other factors, will certainly be no disincentive to other housing association issuers to follow suit.

Housing associations are also being asked for greater transparency in the reporting of their value for money metrics by the Regulator of Social Housing.

It’s a requirement and a challenge that becomes ever more vital as housing associations and councils vie to meet broad and at times competing challenges – bringing stock into line with higher standards on energy efficiency, balancing the delivery of much-needed new homes against environmental impact, and, most importantly, going above and beyond to ensure the safety and well-being of tenants.

On this most crucial priority, the recently reopened Grenfell Tower Inquiry stands as a powerful reminder of the cost of forgetting the people who social housing is for.

If tenants are not protected and safeguarded, all purpose is lost.

Sarah Williams, deputy editor, Social Housing