Show and tell
Finance may be what’s driving the environmental, social and governance agenda, but there’s a bigger opportunity at play for the sector
GOVERNANCE
Image: Istock
Luke Cross
Director, Social Invest
Environmental, social and governance (ESG) is taking off in a big way across the social housing sector. We’ve seen over £5 billion of sustainable and ESG-badged finance raised by housing associations over the past two years. Around 100 housing providers and funders have signed up to the sector’s ESG standard, the Sustainability Reporting Standard for Social Housing (SRS). And around 50 ESG reports were published by housing associations over the past year.
Inevitably, there are differing views about who ESG reporting is for, and what it’s here to do. And how its role extends beyond finance as a means to engage and inform wider stakeholders, including tenants.
ESG issues are everyday issues
Taking a step back, we see ESG typically serving three core purposes:
- To show how your business is managing risk in relation to environmental, social and governance issues
- To demonstrate that your organisation is doing right by its people and the environment
- To set out how you’re delivering, or intending to deliver, positive impact to the environment and society
As ESG moves further into the mainstream, its meaning is becoming broader and these objectives increasingly conflated. To address this, it is helpful to consider what drives investors.
Debt investors are first and foremost interested in the risk part, as it pertains to global issues (climate change, diversity, human capital). At a sector or business level, this covers energy-efficiency and management, waste management (particularly in construction processes) and rising energy costs. It captures product quality, labour rights, data and cyber security, customer services, supply chain management and community impact. And it includes diversity, equity and inclusion and executive pay.
Pretty much all of these issues are relevant to people that work and live in social housing. In short: ESG issues are everyday issues, just as ESG risk is everyday risk.
Making ESG real
The ESG opportunity is around bringing together evidence of business behaviour, performance and progress with real life stories of social and environmental impact. But an ESG report isn’t worth the paper (or digital PDF) it’s written on without transparency and accountability.
A crucial credibility challenge for the broader ESG movement continues to be around data reliability and comparability, rooted in a lack of standardisation and resulting in calls for a more science-based approach. While most would agree that social housing has had a strong start on ESG, these challenges extend to our sector, like every other.
But the reputational crisis social housing providers currently faces, with stories of damp and mould, poor build quality and service shortfalls, is also a test case for ESG’s integrity. And one that must be met head-on for ESG reporting to stand any chance of keeping its credibility intact, particularly in the eyes of residents and other onlookers.
ESG in practice
A key message is that ESG needs to be credible and consistent, whoever the audience. Setting up an ESG ‘engine room’ within an organisation which centralises your ESG data management and KPIs can enable you to distribute the same, consistent, credible ESG information and overarching narrative through multiple channels to key audiences.
For any ESG approach, there is always strength in numbers. ESG is a shared responsibility, bringing people together via working or steering groups and ensuring all the key people (with the right knowledge and expertise) have a seat at the table.
But if businesses really want ESG to resonate beyond the finance team, then of course, it needs to be about engagement – and involving staff, residents, partners and suppliers more directly in ESG approaches and processes at an early stage.
Leading by example
The sector may well be ready to take ESG from something that is investor-led to board-led; from something that is meaningful to both the numbers people and the people living in the homes that ESG finance should exist to support. The challenge will be whether they can convince tenants in particular that it’s more than a marketing gimmick; and more than another shiny report that spins a corporate yarn.
Ultimately, we’re still at a point where ESG is what you make of it – which screams opportunity for the housing association sector. It could well become a channel through which providers decide to tell the sector’s story, with a view to engaging all of the people they value the most.
“Ultimately, we’re still at a point where ESG is what you make of it – which screams opportunity for the housing association sector.”
