Thinking outside of the “E” on ESG

I was pleased to chair a session at the Housing 2022 conference in Manchester at the end of June, which focussed on learning from others in relation to ESG and governance.

The Sustainability Reporting Standard

While it is not mandatory for housing providers to report against ESG criteria, the sector has led the way in creating its own reporting standard, the Sustainability Reporting Standard for Social Housing (the Standard), which was launched in November 2020. The Standard was developed to assist in promoting consistency and transparency in reporting against ESG criteria and over 120 organisations have already signed up to the Standard as either adopters or endorsers. This includes housing associations, lenders and investors and reflects a strong interest in achieving consistency in reporting on these areas.

Following the first round of reporting against the Standard, Sustainability for Housing (the organisation set up to promote and develop the Standard) issued its report, One year in, the story so far, in May 2022, to review the initial reports and feedback from the adopter community. As a result of the findings, updated guidance on reporting was issued (SRS Version 1.2) and it is proposed that a new version of the Standard will be published in 2023.

Thinking beyond the “E”

Given the scope of investment required in the sector to achieve net carbon zero and, more imminently, EPC level C or above, there has understandably been a significant focus on the “E” element of ESG, particularly in relation to ESG-linked funding deals. However, there are opportunities linked to housing providers’ other key areas of focus to think more widely and identify ESG priorities and opportunities. For example, we have seen some funding deals put in place with specific governance and social related focuses, such as Bromford’s £75m Revolving Credit Facility with SMBC in December 2020, which was linked to continuous improvement on gender pay gap reporting.

Considering the “S” and “G” elements

The Governance area of the Standard focusses on four key themes:

  • Structure and governance – looking at the legal structure of the organisation and its approach to governance, including its adopted code of governance, regulatory grading/status and any adverse regulatory findings;
  • Board and trustees – this includes consideration of demographics of the board and how it compares to the demographics of the provider’s residents and board and management team turnover, as well as issues such as maximum tenure and succession planning;
  • Staff wellbeing – including whether the provider pays the Real Living Wage and gender pay gap. The “enhanced criteria” (which providers are expected to work towards reporting against) also look at issues such as the average number of sick days taken by employees and how support is provided to staff to support their physical and mental health; and
  • Supply chain management – this falls within the “enhanced criteria” and considers the creation of social value and environmental impact in relation to the procurement of goods and services.

The Social element of the Standard is based around five key themes:

  • Affordability and security – including affordability of rents, tenure types and how housing providers are trying to reduce the effect of fuel poverty on residents;
  • Building safety and quality – this includes the percentages of homes with valid gas safety checks and Fire Risk Assessments and meeting the Decent Homes Standard;
  • Resident voice – including how resident satisfaction is measured and complaints (including learning from complaints);
  • Resident support; and
  • Place-making and place-shaping activities.

A number of these criteria link strongly to current areas of focus for providers, being driven by legislative and regulatory change and wider sector issues. For example, with recent high-profile news and media coverage linked to poor social housing conditions, it is likely that we will see a greater focus from investors on issues such as governance arrangements, quality of stock data and complaints data. In addition, the cost of living crisis and rising energy prices has meant that providers have been working with their residents to try to help with these issues, including, in some cases, implementing hardship funds.

How providers engage with residents and are able to hear the resident voice is clearly an area of regulatory focus at the moment with the proposals under the new Social Housing (Regulation) Bill. As part of the session I chaired, I was pleased to be joined by Fayann Simpson OBE, board member at Sustainability for Housing and chair of the L&Q resident services board. She highlighted some of the particular initiatives she had been involved with at L&Q, both in terms of ensuring that residents’ voices can be heard, but also in working with residents to design ESG priorities and report on ESG performance. This demonstrates how ESG can be used as more than just an investor-reporting tool, and as a positive engagement mechanism with residents.

A wider opportunity

As mentioned earlier in this article, it is expected that there will be further revisions to the Standard next year. Brendan Sarsfield, Chair of Sustainability for Housing, was also a member of the panel and identified in particular the need for the Standard to reflect housing providers’ priorities around equality and diversity. The “one year on” report also highlighted some areas where there is work to be done on reporting – for example, only 69% of providers who reported confirmed they pay above the minimum wage and are committing to pay the Real Living Wage. This is likely to be an area where supporting explanation will be invaluable, to allow providers to explain their operating models.

However, providers have a real opportunity when looking at setting ESG priorities and reporting on performance to be considering initiatives and key areas of business focus beyond just those linked to environmental issues. This could provide an opportunity for providers to highlight positive governance and social measures they have worked on (and potentially to seek funding deals with KPIs linked to those objectives). Designing ESG criteria and reporting on them could also provide a useful tool for engaging with residents on their priorities, and further strengthening the landlord-tenant relationship, particularly where they are linked to areas of importance for residents, such as fuel poverty.

For more information, please contact Gemma Bell.

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