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Why ESG must remain crucial for the social housing sector

Comment07 Aug 2024Naomi Roper

Naomi Roper, a partner at Capsticks, says registered providers need a credible environmental, social and governance (ESG) strategy to be attractive to funders and satisfy the requirements of their tenants

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Naomi Roper
Naomi Roper

Naomi Roper is a partner at Capsticks

Picture: Alamy
Picture: Alamy
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Naomi Roper, a partner at Capsticks, says registered providers need a credible environmental, social and governance strategy to be attractive to funders and satisfy the requirements of their tenants #UKhousing #SocialHousingFinance

Registered providers (RPs) face a tough operating environment. They are under tremendous pressure to build new homes at a time when the costs of construction and obtaining funding have never been higher.

 

The new Labour government will hopefully bring about great things for the social housing sector, given their promise to deliver 1.5 million new homes across the next parliament and provide the “biggest boost to social housing in a generation”.

 

Against this tough operating backdrop, it is understandable that ESG fatigue may be setting in among RPs.

 

However, being able to demonstrate strong ESG credentials remains crucial.

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RPs have always been in the ESG business. Their core business is to build affordable housing, creating significant social impact.

 

The sector was quick to embrace ESG, adopting its own set of benchmark metrics in the Sustainability Reporting Standard for Social Housing (an ESG standard designed to help the housing sector measure, report and enhance its ESG performance in a transparent, consistent and comparable way).

 

Lender appetite for green, social and sustainable finance remains undiminished. However, RPs may face challenges ahead if they don’t adopt a credible ESG strategy.

 

ESG remains a critical issue for funders. The Financial Conduct Authority’s (FCA) anti-greenwashing rules came into force at the end of May.

 

The rules require that any claims about ESG-related financial products by FCA authorised firms must be “clear, fair and not misleading”.

 

The rules also apply to marketing material and “misleading colours and imagery” (ie putting blue skies and green trees in marketing materials to suggest an environmental benefit where there is none).

 

The FCA has stated that it will be looking for incidences of greenwashing. As a result, funders offering green, social or sustainable financing in the sector need to be comfortable that their products cannot be accused of greenwashing.

As such, the amount of data RPs will need to provide to satisfy ESG-related key performance indicators (KPIs) under such arrangements is likely to increase. Funders are moving towards science-based targets.

 

Many have their own ESG credit committees and are happy to push back against KPIs which are not seen as stretching enough.

 

Those targets must also adapt during the life of any ESG-related financial product, with there usually being a requirement that they be re-evaluated at the three-year mark.

 

Aside from sustainable finance, funders are still prioritising ESG. Producing an annual report against the Sustainability Reporting Standard is now considered the gold standard for RPs in the social housing sector.

 

While the E of ESG tends to get a lot of attention, we know funders are increasingly asking questions about related issues, such as employee well-being and inclusivity of voice, both in relation to the RP itself and its tenants.

 

Regulatory changes are also coming down the line, including the implementation into UK law of the globally applicable sustainability standards IFRS S1 and S2 published by the International Sustainability Standards Board, and the implementation of the UK Green Taxonomy, which is designed to mobilise green investment.

 

These measures are likely to trickle down to RPs in terms of their sustainability reporting.

 

The clear direction of travel is that ESG will continue to be a very high priority for funders and other stakeholders in the social housing sector.

 

RPs will need a credible ESG strategy and a wealth of data on both stock, and equity, diversity and inclusion in order to be attractive to funders and satisfy the requirements of their tenants.

 

Naomi Roper, partner, Capsticks

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