Sustainable investing is only possible with effective tracking – here’s what’s expected of HAs

Assess and reduce GHG emissions footprint

 

Conducting comprehensive life-cycle assessments and evaluating resource consumption provides HAs with crucial insights into managing their portfolios’ GHG footprint.

 

Identifying areas with the highest environmental impact, such as energy-intensive assets or supply chain inefficiencies, enables HAs to prioritise improvements and develop strategies to reduce their overall GHG footprint.

 

• Benchmarking and setting targets: Setting ambitious energy efficiency targets and comparing performance against industry benchmarks helps organisations identify areas for improvement.

 

• Regular audits and inspections: Conducting regular audits and inspections enables HAs to identify opportunities for energy-saving measures, address maintenance issues promptly, and ensure compliance with environmental standards. 

 

• Stakeholder engagement and feedback: Engaging residents, employees and other stakeholders in sustainability initiatives via feedback mechanisms and communication channels fosters a sense of ownership and encourages acceptance of green projects that could cause short-term disruption to communities.

 

Manage holistic sustainable projects

 

Integrating sustainability objectives into portfolio analysis is vital for HAs to align their investment strategies with their environmental goals.

 

This involves identifying and investing in projects that promote a holistic approach to sustainability such as:

 

• Biodiversity: For example, biodiversity net gain, which increases tenants’ access to green spaces.

 

• Circular economy: For example, more recycling facilities.

 

• Sustainable infrastructure development: For example, access to clean transport.

 

The incorporation of holistic sustainability strategies helps organisations prepare for new ESG regulatory and legal requirements, as well as extreme weather risks, such as flooding. 

 

If HAs actively manage the investments that will produce the most “bang for their buck”, they can ensure their portfolios contribute positively to the environment and respective communities, while continuing to generate desired returns.

Set clear KPIs and targets

 

HAs should be mindful of considerations at various levels, when they set KPIs and targets for improving assets.

 

These include their alignment to global frameworks such as the UN’s Sustainable Development Goals (SDGs). They should also consider how they compare at a national level to environmental performance standards (EPC ratings) and environmental design standards such as Leadership in Energy and Environmental Design (LEED) and BREEAM.

 

When considering these frameworks it is useful to keep in mind:

 

• Relevance: Which frameworks are the most relevant? HAs should align them with wider sector and regulatory goals, such as the UN SDGs.

 

• Measurability: Can HAs effectively measure and track KPIs over time? It’s crucial to have reliable data collection systems and methodologies in place.

 

• Materiality: Which KPIs have the most material impact? How should HAs prioritise them? Here, HAs should focus on areas where they have the most significant influence and can drive positive change. These are typically ESG issues found in the top right of their materiality matrices.

 

• Ambition and targets: Targets should be specific, measurable, achievable, relevant and time-bound (SMART). It could also be useful for HAs to consider industry benchmarks and the best practices of their peers when setting targets, to illustrate their ambition.

 

There is a growing expectation for companies to target Scope 3 emissions, where these are material to their overall GHG emission footprint.

 

The preferred targets are absolute targets, intensity targets and supplier-engagement targets, as absolute targets are the clearest illustration of the company’s decarbonisation trajectory.

 

Developments in relation to the UK taxonomy will be another influencing factor. We expect these will align with other, international taxonomies such as the EU taxonomy.

 

HAs can therefore future-proof their sustainability strategies by creating a framework to evaluate their portfolio’s environmental performance and the extent to which it aligns with the respective taxonomy’s environmental objectives.

 

Monitor progress against ESG KPIs

 

Effective monitoring of ESG KPIs enables asset owners to measure their progress and identify areas that require improvement. This enables HAs to communicate the ESG benefits of their investments.

 

By integrating ESG data into their portfolio management systems, asset owners gain valuable insights into the environmental and social performance of their investments, allowing for informed decision-making.

 

These KPIs can include metrics related to ESG project topics noted in the LMA’s Green and Social Loan Principles, and routinely used in the impact reports of HA finance frameworks.

 

Conclusion

 

It is crucial that asset owners committed to sustainable and responsible investing enhance their portfolios to track environmental targets, footprints, projects and ESG KPIs effectively.

 

If they set clear targets, assess and reduce environmental footprints, manage sustainable projects, and monitor their progress against relevant ESG KPIs, asset owners can align their investments with their sustainability objectives and drive positive change in the world.

 

Dominic Brindley, director, specialist financing and risk solutions, NatWest