Decarbonisation journey: why ‘you’ll never walk alone’

Banks are rolling out a range of green-focused products, both through their own balance sheets (eg lending, leasing, liquidity solutions) as well as intermediated (primarily via the public and private debt capital markets).

They see it as a win-win: support customers, while advancing their own decarbonisation and climate finance targets. As the product and advisory mix has broadened, meetings have become more holistic.

For a housing association treasury team, this means an opportunity to support their organisation’s sustainability goals while also following the preferred mix of financing instruments.

Banks are also starting to offer expertise and advisory in this area, both on a standalone basis and with other partners. A case in point being the ‘Sustainable Homes and Buildings Coalition’, of which NatWest is a member. 

Bond investors are starting to apply a transition lens to their activities. 

Increasingly, they are assessing housing associations (and other real estate firms) on the credibility of their overall decarbonisation plans. 

Issuing a green or sustainability-labelled bond will likely show more commitment to this area than a social bond (that does not consider environmentally impactful projects).

Similarly, this can be achieved with a sustainability-linked debt instrument, to include portfolio EPC or other energy improvement targets (albeit this has been more common among housing associations in the bank loan market).

Net zero-minded debt-holders are also starting to act in unison. They are setting up joint platforms to promote industry best practices and awareness. 

While these have tended to focus on highly polluting industries (such as the Transition Pathway Initiative and Climate Action 100+), guidance around real estate specifically is starting to be developed (see for instance the Principles for Responsible Investment). 

Such initiatives tend to emphasise both the plans in place and the reporting on those plans.

When we survey bond investors on the actions a borrower should take to showcase its sustainability commitment, quality of reporting regularly appears in their top three.

The Sustainability Reporting Standard for Social Housing is a natural starting point for most UK housing associations. 

Yet it is worth knowing what other benchmarks banks and bondholders find valuable. This is either because they track them directly (such as a CDP score) or because they feature heavily in the environmental, social and governance (ESG) rating assessments that are being relied on (such as an MSCI ESG rating).

There are countless possible ESG metrics to disclose. Knowing what really affects your standing within the debt markets can help an organisation prioritise.

Increasingly, this will include forward-looking scenarios. Within the sector, it is becoming best practice to conduct stress tests to assess portfolio robustness to climate change-related risks.

While housing associations are typically exempt from having to disclose such factors (as part of the Financial Conduct Authority’s thresholds around climate disclosure), most major banks and asset managers are considering these risks for their portfolios. 

The more engagement with them, the less they will have to rely on (imperfect) outside-in assumptions.

Housing association treasurers are becoming increasingly confident in talking about their organisation’s green mission – seeing it as closely linked to their social ‘raison d’être’, given the major societal implications of climate change. 

Many lenders and debt investors are fellow travellers. Starting a dialogue won’t just help the treasury function, but the whole organisation.

Dr Arthur Krebbers, managing director and head of corporate climate and ESG capital markets, NatWest