Second UK housing association adopts pan-European ESG label

Catalyst, which tapped its existing 2047 bond for £150m in June at 155bps over gilts, is currently “recalibrating” its development projects to establish what required funding looks like going forward.

“We are very liquid at the moment, and that’s great, so there is no immediate need. But when next we need to go to the market we will be taking full advantage of the accreditation,” Mr McDermott said.

Clarion’s recent performance in the capital markets would seem to attest to the strength of having the label. Issuing its second sustainability bond through its £3bn Euro Medium-Term Note programme in November, the group broke its own pricing record for the lowest-priced primary housing association issuance. With a coupon of just 1.25 per cent, the 12-year, £300m bond priced at only 95bps over gilts.

At the time, Gareth Francis, director of treasury and corporate finance at the circa 127,000-home association, told Social Housing that offering a sustainable bond helped to achieve the low price, with “ethical funds as well as ESG funds” included in the circa £850m order book. “We started to see greater demand and that leads to greater pricing tension,” he said.

Dr Mathias Hain, managing director of Berlin-based Ritterwald, said that the impressive result was indicative of investor trends. “The market for green, social and sustainability bonds has grown to more than $300bn last year and will exceed $400bn by far this year. There’s a huge amount of liquidity and money in the market that is seeking sustainability investment.”

While the housing sector itself is well equipped to be an ESG investment, he said, enabling differentiation between organisations in terms of their specific performance is also important for investor engagement. “There are differences between the participants – that’s why we have categories, and who is scoring at what score to show to investors that there is a difference.”

The adoption of the label is the latest step Catalyst has taken within the sustainable finance space. It signed a £50m sustainability-linked loan with Japanese bank Sumitomo Mitsui Banking Corporation at the start of the year. Through that deal, the margin Catalyst will pay is tied to pre-agreed metrics related to the work of its community investment division.

The association’s name also appears among the list of 43 housing associations signed up as early adopters of a new ESG standard for UK social housing at its launch on 10 November. The ‘Sustainability Reporting Standard for Social Housing’ has been developed over the course of a year through a sector working group involving major housing associations, lenders and advisors, facilitated by consultancy The Good Economy and to which Ritterwald also contributed.

Mr McDermott said that the Ritterwald framework and label are entirely compatible with the UK sector standard.

“There is a common DNA running through all of this, from the UN sustainable development goals, through to The Good Economy [sector standard], to the Ritterwald accreditation,” he said.

“I believe that they are all consistent with one another and build on the work that is being done by each, so absolutely we see them as compatible.”

Dr Hain added that the cross-pollination of ideas between countries and organisations, as well as the fusion of impact capital expertise from The Good Economy with Ritterwald’s bond market focus, would be

complementary for the ongoing development of the different standards, which will need to evolve with the sector over time.

He said: “It’s excellent for us from this continental view to have this domestic experience in the UK housing market, and these two dimensions to it.”

To obtain the label, an association must provide Ritterwald with a series of data spanning the organisation from operations to finance to complete its first full annual review under the framework. Ritterwald then evaluates the organisation across its criteria within the three dimensions (E, S and G), and creates its report. This is then passed to a second party opinion (SPO) provider who confirms the documentation and compliance of the certification process.

For both Catalyst and Clarion, these were provided by Imug, but a growing number of SPOs are available.

Dr Hain said that while this means another step in the certification process, this “aspect of neutrality” is important from the perspective of the financial markets.

While Ritterwald’s framework initially covered only environmental and social factors, it now includes a governance category, too.

Catalyst becomes the first organisation holding the label to have achieved ‘front-runner’ status on all three categories at its first annual assessment.

It will now need to maintain its performance against the criteria when the certification is refreshed on an annual basis.

Mr McDermott said that integrating the framework into the organisation feeds into Catalyst’s holistic approach to its priorities. “When we are building a development we will look at the home, we will look at the environmental credentials of the home that we are building, but we will also look at the building overall, we will look at the neighbourhood and we will look at the local economy, and what are the structure and economic stresses and strains of that particular area. I think this label absolutely captures that in a way which I think other measures don’t quite do.”