18 January 2021

Environmental, Social and Governance (ESG) reporting is becoming a standard requirement for housing associations. But how will organisations adapt their priorities and working practices to continue to meet their objectives?

2020 saw a rapid growth of interest in Environmental, Social and Governance (ESG) principles in the UK, which led to:

  • Increasing numbers of investors setting up dedicated funds, or introducing ESG vetting on their general portfolios.
  • Banks offering ESG-related products to more clients.
  • Borrowers responding by aligning their loans, and capital market issues, to an ever-growing set of ESG criteria.

Principles and guidelines are developing fast to keep pace. The International Capital Markets Association (ICMA) now publishes three sets of principles and one set of guidelines. Both the Sustainable Bond Guidelines and Sustainability-Linked Bond Principles offer a hybrid of social and green bond principles, with further variations available depending on use of proceeds, or the issuer’s commitment to a set of ESG Key Performance Indicators (KPIs).

In our sector a group of 18 housing associations, investors, service providers and impact investing organisations published a white paper in May 2020 and ran a public consultation and feedback process. The now established Sustainability Reporting Standard for Social Housing (SRS) is a voluntary reporting framework, covering 48 criteria across ESG considerations such as zero carbon targets, affordability and safety standards.

ESG reporting is becoming routine practice, and for those wanting to benefit from enhanced ESG status, there is a need to develop appropriate standards. ESG is, therefore, coming under more scrutiny both from investors and regulators, with a drive for standardisation and better comparability and the SRS’s aim is to drive reporting consistency across the sector

This is a good thing for those who see ESG as a means of changing corporate behaviour. However, is it good for businesses whose objective is delivering positive outcomes? And how will they need to adapt their priorities to address this?

One of the themes I want to address at this year’s Housing Finance Conference is the practical issues involved in compliance – whether using guidelines or rules. Is there a risk that ESG compliance will force housing associations to think too much about the rules, or peer group comparisons, diverting attention from the very localised issues where, in fact, they may deliver the greatest impact?

Housing association boards are already having to manage the conflicting demands of improving existing homes, providing wider community services, and building new homes for future tenants. How will having ESG benchmarking impact these decisions? Or will it, rather like a rating, act as an externally imposed discipline that will help to measure or prioritise these conflicting demands?

Our panel includes Bromford, who have experience of ESG funding, and MORhomes– whose entire programme operates under ICMA Social Bond principles. Wewill therefore have the opportunity to discuss how housing associations can navigate ESG guidelines, and prepare for when they may turn into requirements, or even rules.

At the moment, it’s difficult to see that a housing association can go wrong if it goes back to its core mission – to demonstrate how it delivers its social and sustainable objectives and then respond to the market. Many housing associations have chosen to early adopt the SRS and reporting on these criteria should also be considered.

However, if a bank offers attractive terms for meeting governance KPIs, you should design and negotiate them to fit your organisation.. Or if you are accessing the capital markets, setting up a broader framework, such as the SRS, may be the best route. For some housing associations, composing your own impact report may be the best way to convey to lenders and other stakeholders the unique way your organisation adds social value.

Henrietta Podd

Henrietta is a Director at Chatham Financial.

Henrietta has worked in the bond markets for over 30 years. In 2010 she & a colleague set up the business, now at Chatham Financial, focussed on advising housing association & care businesses. She is also a director of Allia C&C, a member of the bond forum of the CISI and the housing committee of the Church of England Pension Fund.

How ESG reporting compliance could impact on the key decisions of housing association boards