ESG standard set to boost focus on residents, quality and EDI

Among the external influencers cited are The Investment Association, which launched new guidance for housing association issuers at the end of last year, and the Task Force on Climate-Related Financial Disclosures (TCFD).

The Investment Association, an investment management trade body whose members manage around £10tn of assets in the UK and beyond, released an updated version of its Governance and disclosure guidelines for housing associations seeking funding from capital markets, in November. As well as reiterating the expectations of the previous guidelines, published in 2017, the new document calls for “greater disclosures related to ESG issues”, and social disclosures such as pay gap data and “qualitative discussions” of social impact.  

It also requests details on properties that do not meet the Decent Homes Standard, and information on other remedial works including the scale, cost and expected timelines of completing these. On the theme of customer satisfaction and complaints, it recommends a breakdown by age and ethnicity of the complainant to “identify potential for discriminatory treatment”.

Speaking to Social Housing in December, SfH chair Brendan Sarsfield said that it wasn’t for the body to tell The Investment Association “what’s right or wrong” with its guidelines, but that it was important for the sector to acknowledge the direction of travel and to take steps before the desirable becomes mandatory.

 “They’re not the only ones asking for quicker change and more extensive reporting,” he said at the time. “We need to see what’s happening in ESG beyond the sector. From our point of view, and the sector’s point of view, I think we should just sense the direction of travel rather than react to The Investment Association’s guidelines – and make sure our reporting moves forward at the right pace.”

Comply or explain

While the current version of the standard includes both ‘core’ and ‘enhanced’ criteria, the new draft removes this distinction and instead implements a ‘comply or explain’ approach. This means that associations will be expected to report against all criteria, and where they are unable to do so, explain the steps they are taking towards doing this. However, an ‘enhanced reporting option’ is included on some criteria which are not mandatory, but are seen as best practice.

It also requires the reporting of year-on-year results to enable clear comparison.

Meanwhile, the criteria have been reorganised to follow the order of environmental themes followed by social and governance.

Lender and investor adopters of the current standard (Version 1.2) span a range of funders with collective assets under management of more than £1tn, including Aviva, M&G Investments, Abrdn and Legal & General.

Commenting on the consultation launch this week, Mr Sarsfield said: “The worlds of ESG and social housing continue to evolve at pace and ESG reporting needs to keep up. This new draft version of the standard has been created in consultation with the housing and finance sectors, and hopefully meets new emerging demands while recognising the importance of continuity.

“We are pleased so many adopters have helped us with this update and we hope more will continue to contribute to the consultation in the coming weeks.” 

Sarah Smith, chief financial officer at Southern Housing and SfH board member, said: “Demand for investment in ESG areas such as social housing is only going to grow and the sector needs to be alive to this opportunity as it looks to tackle the housing crisis.

“The sector also needs to maintain its solid reputation when it comes to ESG reporting, which is why SfH has sought to tighten up key areas of focus within the SRS.”

A finalised Version 2.0 is expected to be published in the summer following the consultation. However, the new version will not be reported against until October 2024, with the current SRS Version 1.2 remaining in place for the next round of reporting in October this year.