Aggregator upgrades ‘social’ label to launch sustainable bond framework

News12 Feb 2021Sarah Williams

Housing association bond aggregator MORhomes has launched a new sustainable bond framework, building upon its earlier adoption of the sector’s first ‘social’ label.

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Bond aggregator upgrades ‘social’ label to launch sustainable bond framework #UKhousing #SocialHousingFinance #ESG

Housing association bond aggregator MORhomes has launched a new sustainable bond framework, building on its earlier launch of the sector’s first ‘social’ bond #Ukhousing #SocialHousingFinance

As set out by the International Capital Markets Association (ICMA), ‘sustainability bond’ guidelines fuse together the components of ‘social’ and ‘green’ bond principles. ICMA defines a sustainability bond as one where the proceeds are “exclusively applied to finance or refinance a combination of both green and social projects”.

To date, three such bonds have been issued in the social housing sector – two via first-mover Clarion last year, and most recently a £250m issuance by Aster under its new sustainability framework and just-launched Euro Medium-Term Note programme.

MORhomes’ new framework has been reviewed by second-party opinion (SPO) provider Sustainalytics, which also provided the SPO on the issuer’s earlier ‘social’ label, and on Aster’s recently adopted framework.

NatWest’s sustainable finance team supported MORhomes on the development of its approach.

Alongside this, MORhomes has created its own ‘Sustainable Housing Assessment’ (SHA), which will apply to prospective borrowers. The company said that the SHA had been developed in house and then piloted by five housing associations, including 4,000-home South East Wales landlord Melin.

According to MORhomes, this assessment approach “extends the concept” of the Sustainability Reporting Standard for Social Housing, which launched in November following development by a sector group.

To achieve eligibility as a borrower, HAs will need to answer 11 multiple choice questions covering a range of indicators including the energy efficiency of existing and new stock, and the installation of low-carbon heating systems. Each measure will generate a score that contributes to grading for each of the three categories of environment, social and governance (ESG) as well as an overall grading.

As set out in the framework document published yesterday (11 February), the general principle adopted in setting the scoring system is “to ensure that a score of 50 per cent for each measure is equivalent to exceeding the national average or other similar suitable objective benchmark for that measure”.

It adds: “To achieve the minimum threshold for the MORhomes ESG standard a potential borrower must achieve: EPC level A or B for the new housing units it is constructing; 50 per cent of the aggregate score; 33 per cent of the individual scores of each of the three categories of environment (60 points), social (60 points) and governance (45 points)."

The questionnaire process will be independently validated by Ritterwald – the German consultancy that is also behind the pan-European Certified Sustainable Housing Label adopted by a handful of UK providers to date, including Clarion, Catalyst and Scottish provider Link.

Patrick Symington, chief executive of MORhomes, said: “Tackling the housing crisis and creating lasting change has always been part of our ethos at MORhomes. This new framework and SHA are testament to this. We are proud to have developed a genuinely unique approach to assessing the ESG impact of our current and prospective housing association borrowers which is also quick and simple to complete.”

He added: “From a sustainability perspective, there is real commitment from housing associations to safeguard the future of the planet and we are urging all our borrowers and shareholders to adopt the sector reporting standards and show us how they are meeting the requirements through the sustainability assessment.”

Elizabeth Howard, director of finance at Melin Homes, said: “It has been a really useful and interesting process to be part of the development of MORhomes’ SHA and to have the opportunity to feed in the Welsh perspective. Like many of our sector peers, we know that Melin does a lot of great work in terms of ESG but we haven’t always had a clear way of benchmarking this or recording it in a consistent way.

“A score of 50 per cent in the SHA is a ‘pass’ and indicates high standards so it is reassuring to see that we have scored so well, particularly in the environmental category where we achieved 75 per cent.”

Dominic Brindley, head of public sector and structured asset finance at Natwest Markets, said: “Having supported the working party to produce the [Sustainability Reporting Standard for Social Housing] in 2020, it is a great pleasure to have worked with MORhomes, Sustainalytics and Ritterwald to help expand MORhomes’ existing social bond framework into a sustainable bond framework.

“The framework provides significant support for fundraising for social housing providers that wish to tap into the sustainable capital markets for more modest funding requirements. At NatWest we see this as a crucial step in enabling wider market access for sustainable issuance.”

Alongside the launch of its new framework, MORhomes has also published its Social and Sustainability Impact Report 2020/21.

MORhomes made its debut £250m issuance through its social bond programme exactly two years ago (12 February 2019) at a spread of 190 basis points over gilts, and has to date lent a total of £429m to 15 associations through the programme.