ESG reporting standard ‘will attract diverse investor base’

‘Common language’

Also speaking at the webinar yesterday (28 May), Anthony Marriott, head of treasury at Peabody, said it would be helpful for housing associations to use a common language to describe factors such as affordability, placemaking and resident engagement.

He said: “I’m sure a lot of us are going through preparing [financial year-end] accounts at the moment on a broadly consistent basis and if we can do a similar sort of thing with ESG that’s got to help.”

He added that in creating a benchmark for ESG, standardised reporting also had the potential to “lead to some improvement in certain behaviours, particularly on the environmental side of things, where I think there is a bit of a stretch for [HAs] to achieve new things in the future”.

Mr Marriott said that alongside receiving numerous ESG questionnaires from investors, Peabody’s recent meetings with funders had also seen investors and lenders “bringing their own ESG experts into the room”.

He added: “We need to be talking the same language as all of these guys.”

Fellow panellist Marcos Navarro, director of housing finance for the North and sustainability/ESG lead at NatWest, said the environmental agenda is a key priority for the bank. Alongside capital markets activity in green, social and sustainable bonds, NatWest has also participated in around 35 sustainability-linked loans (SLLs) in different sectors.

As first reported by Social Housing in February, these included its debut social housing SLL and the sector’s first to be linked to environmental standards, with a 10-year, £50m revolving credit facility with Bromford, where the interest rate is tied to energy efficiency metrics concerning the provider’s existing homes.

Mr Navarro said that in the broader investment community, ESG is “becoming an expectation… so being able to report on it successfully is really important”.

He said this is no less of a focus in the current climate. “It’s worth noting that despite COVID-19, that’s not gone away, and if anything it’s probably made people take a second look at investments, and that social, environmental and governance is already important but I would say if anything it’s probably provided more evidence for that.”

Earlier in May, the results of a poll of 200 UK independent financial advisors found that 85 per cent of respondents had seen a rise in client requests to allocate capital to ESG-integrated funds since the start of the outbreak.

The survey by Federated Hermes, an asset manager focused on responsible investing, also found that 82 per cent believe the current crisis and its impacts will result in more individuals investing in pursuit of ESG goals in the future.

Mr Navarro said that where capital markets transactions are concerned, articulating and reporting on ESG objectives could have an advantage from a pricing perspective. “You will open up more investors’ interest and then naturally the more investors that are interested, as a housing association you are in a better position to negotiate better terms.”

ESG league tables?

At the same time, panellists were keen to emphasise that the approach is not designed to pit housing associations against one another in a “league table” of ESG credentials.

Sarah Forster, chief executive of The Good Economy, which created the white paper, said that the question of ratings “came up a lot” during the consultation process alongside “what good looks like”.

“We purposefully decided not to [have a ratings system] attached to the criteria… the idea was to have a consistent reporting standard, a disclosure standard, and then it’s up to investors to judge what they weigh as more important.

“But we see this as a disclosure standard for everybody, not about benchmarking who is better than the other,” Ms Forster said.

Phil Jenkins, managing director at Centrus, added: “Good ESG reporting is about disclosure in the context of the business in question.

"So it’s not about ‘housing association A’ being good compared to ‘housing association B’.

"It’s about what are A and B doing in the context of their own business model, their locality, their size and a host of other factors – in the same way that major oil companies report on ESG in the context of being an oil company.”

Third-party audit

Answering a question on whether external auditors or third-party accreditation would be required to certify ESG credentials, Gareth Francis, head of treasury at Clarion, said that this would be a matter for individual associations to decide. Clarion in November last year became the first UK HA to adopt the pan-European Certified Sustainable Housing label from German consultancy Ritterwald ahead of its £350m ‘sustainable’ bond.

“Clarion has taken this further and I would expect others to as well, but it has to be right for your business, in much the same way that credit ratings aren’t necessarily right for all HAs – and two credit ratings aren’t necessarily right for all HAs,” Mr Francis said.

The white paper proposed that the next step towards embedding a standard will be to pass the baton to a “properly representative industry body”, something in which the sector has form, for example in the Housing Statement of Recommended Practice for financial accounting standards.

The working group will also engage with Tpas and wider tenant groups in the coming weeks, and has already engaged with sector organisations specialising in social value measurement.

All shapes and sizes

Ms Forster said it is important that the approach to reporting is accessible to HAs of all sizes and shapes, and that the group is keen to receive feedback from providers and other stakeholders to inform the further development of the approach.

Further consultation with HAs will include work by new participant, sector funding aggregator THFC, which Ms Forster said will “test out how realistic” the criteria are for its borrowers, which include smaller associations.

She said: “What we don’t want is that this [standardised approach] unintentionally has the consequence of favouring the bigger organisations and enabling them to have easier access to capital at the expense of smaller ones – that for us would be a negative outcome.

“This is about enabling the whole market to have access to capital that is aligned socially, environmentally.”

To take part in the ESG social housing consultation and for information on upcoming webinars, go to esgsocialhousing.co.uk.

Social Housing’s Impact Investment and ESG Conference is taking place on 15 October, with topics including the role of ESG in building a ‘new normal’. Click here to learn more and register your interest for 2020.