Sector’s first governance-linked loan sees margin tied to gender pay gap KPIs

Imran Mubeen, head of treasury at Bromford, said: “We support all aspects of the ESG agenda and wanted to shine some light on the governance area that has a less obvious link and perhaps has gone more unnoticed than the environmental and social areas. We are delighted to be the first in the sector to bring this link to life through a dedicated SLL.”

Through the deal with SMBC, if Bromford meets the agreed annual KPI to continuously improve its gender pay gap from its existing group level of 7.1 per cent (median), it will benefit from a lower interest rate margin on the loan, with the savings reinvested in community projects to support its customers and communities.

Addressing the gender pay gap was “fundamental to creating a workplace which enables all colleagues to thrive” and a “core pillar” of the group’s strategy, Mr Mubeen said. He added that the savings will be reinvested in projects that aim to empower women in Bromford’s communities.

To achieve the savings it will also need to maintain its G1 rating for governance from the Regulator of Social Housing. “If we slip from that G1 rating we don’t qualify for the margin reduction. And I think that gives absolutely the right prominence and the right focus, to maintaining that top governance rating from the regulator,” Mr Mubeen said.

Should Bromford not meet the required performance metrics, the rate will remain flat, but there is no penalty margin imposed.

Mr Mubeen said: “For us these deals should stand up in their own right, so the commercial reality of the deal has to be absolutely attractive to Bromford even before you look at the wrapper. We then very much see the wrapper as additionality, genuine additionality to the commercial deal that we want to achieve and that is fitting to Bromford’s credit profile.”

Mr Mubeen said Bromford was delighted to welcome SMBC as a new lender, and significantly its first overseas lender in its suite of four revolving credit facilities.

He said he hopes the deal would support a “re-basing of price amongst some of the UK banks who have been pricing wider than expected for the sector and for Bromford’s credit profile”.

The transaction follows a number of recent deals for Bromford, including a deferred deal in July in which it locked in current rates on £90m of funding with a single investor, which it will access in 18 months’ time, and an earlier £100m 12-month deferred deal with Legal & General.

Commenting on the announcement of the group’s deal, Fiona Regan, chief people officer at Bromford, said: “We perform well on our gender pay gap at Bromford but it is important that we continue to strive for improvement.

“Enabling colleagues to thrive is at the heart of our strategy and this deal will ensure we all know what the gender pay gap is, how well we perform against it and how we can continue to ensure gender mobility right across the organisation.”

SMBC said: “SMBC is pleased to have worked on its first governance linked loan with Bromford and shares its aspiration to contribute to the development of the communities in which it operates.“

Legal advice on the deal was provided by Trowers & Hamlins for Bromford, and Addleshaw Goddard for SMBC.

ESG framework

Bromford will also soon unveil a new ESG framework that it has been developing. It expects to publish this by March 2021 and the group intends to use it to include a ‘sustainability’ label on its next outing to the capital markets, Mr Mubeen revealed.

Mr Mubeen said that the framework would bring together the work around ESG that Bromford has done to date both internally and through its relationships with individual lenders, and would enable it to communicate its credentials clearly with investors and funders.

“We have always pursued a number of projects which fit the ESG narrative and continue to deliver in this space including sustainability, decarbonisation, diversity, homelessness and the social agenda more broadly," he said.

“This framework is about bringing that all together in one seamless space, one single framework which will govern future capital markets issuances with sustainability wrappers around use of proceeds, or particular borrowing around specific targets or KPIs.”

Recent months have seen a flurry of activity in housing associations seeking to better record and communicate their ESG credentials. On Friday, Social Housing reported that Link Group had become the third UK HA, and the first Scottish RSL to adopt the pan-European Certified Sustainable Housing Label. Meanwhile in November the names of more than 30 lenders and investors and more than 40 housing associations in England and Wales to become ’early adopters’ of a new sector standard for ESG reporting in UK social housing were published.