£1bn of HA issuance to shift to ‘social’ bonds as major UK lender adopts framework

However, chief executive Piers Williamson told Social Housing that the decision to pursue a ‘social’ rather than a ‘sustainability’ bond framework in the first instance stems from the desire to retrospectively apply the label to Blend’s portfolio. To date this includes 17 borrowers.

“An aggregator has a different task in these frameworks than a single issuer, and we wanted to start from the sure footing where we were able to say that everything that we have done… throughout the lifetime of Blend is consistent with the social framework that we are adopting.”

In seeking to apply the label, Blend has asked its borrowers to report on their environmental, social and governance (ESG) activities in line with the 12 core themes of the Sustainability Reporting Standard for Social Housing. These will be collated into the company’s first summary report, which is expected to be published around September.

Mr Williamson said that this would provide an important testbed for THFC and the wider sector in terms of best practice for data collection and reporting standards.

“By the time we do it, we will have over 20 customers in Blend already, so we’ve got 20 sets of data to collate, and to experiment with what the best form of output looks like: what do investors want to see, what common standards can we achieve?

“Within Blend, we’ve got everything from a 45,000-unit housing association to a 3,000-unit housing association… so that in itself is quite a good testbed to say what do common standards look like.”

More broadly, Mr Williamson said the adoption of the approach is in response to the wider trend within the finance sector to focus increasingly on ESG considerations, and in order to maintain access to a broad pool of investors. There is also an opportunity for the sector to clearly communicate with government as it maps out the financial challenge of decarbonisation, he said.

“I think there will be an ask of government [from HAs] around the path to zero carbon, and if there is a common language around what are we all doing towards E, S and G, at that point, it will be a really useful differentiator for us as a sector.”

In this respect, housing’s aggregators have “a very important role to play in fast-tracking the adoption of common standards”, Mr Williamson said. Fellow bond vehicles MORhomes and GB Social Housing are also early adopters of the reporting standard.

MORhomes, which was first to issue a ‘social’ bond in the sector with its debut issuance in 2019, recently launched an upgraded ‘sustainability’ framework, which it will apply to future issues.

To date just a handful of HAs have launched ‘sustainability’-labelled bonds, with first-mover Clarion launching two in 2020, totalling £650m, followed by Aster’s £250m bond in January 2021.

Last week, PA Housing joined the club with its £400m (£100m retained) issuance, while Beyond Housing this week began marketing its first sustainable bond.

The number is likely to increase rapidly this year, with numerous HAs including the likes of Bromford, L&Q and  Hyde penning frameworks.

Speaking in early May, Mr Williamson said that Blend expects to issue its first social bond within the next “four to six weeks”.

On whether a pricing advantage is anticipated, Mr Williamson said that there was evidence in the market of increased ESG investor interest on shorter-dated (circa 15-year) sustainability bonds, but for THFC’s (longer-dated) bonds he said proof would need to be seen in comparison with the secondary markets.

He added: “Over time, I think it will become a hygiene factor for investors, that they will say if it isn’t social or sustainable we will charge you more. But in the short term I think the early adopters are getting some benefit for shorter [tenor] deals that are done.” 

In the last year, Blend has signed £565m in new loans, at a weighted average cost of funds below 2.2 per cent.