The ESG investment market presents an increasingly attractive source for funding; evidence will be key to winning confidence
There is a growing interest from investors in putting money to work where it matters. This trend is an opportunity for the social housing sector to deliver on sustainability goals, provide more housing to alleviate the housing crisis, and future proof organisations. In order to prepare to access ESG (Environmental, Social and Governance) markets, having organised, open and consistent data is a must.
For providers of social housing, positive impact is a central tenet of each organisation and as a part of that, green and carbon neutral factors have increasingly been both embraced and enforced. On the pathway to net zero carbon by 2050, the UK government has enshrined in law a 78% slash in emissions by 2038. This will present considerable costs in terms of retrofitting and managing existing stock, building new homes using new methods and materials, and accessing green energy supplies.
Achieving such goals will be expensive but preparedness now will invite support and confidence as the sector moves forwards. It is estimated that there is a £2 trillion impact investment market and actions taken now to embrace better practices in the future may pay dividends. At MRI Software, we’ve been working with our customers to embed ESG reporting capabilities. In partnership with trusted experts, we have been building powerful systems to suit each individual organisation’s need for sustainability compliance and mitigate risk by producing robust ESG ratings that are attractive to investors and can fuel further sustainable innovation and growth.
ESG isn’t about making ‘eco-friendly’ pledges that lack actionable plans or concrete steps on how to achieve it; it’s about setting guidelines for sustainability and then remaining in compliance with those standards, adopting new best practices when further evidence is unveiled and benchmarking progress in order to deliver sustainable change in the long-term.
Social housing is a growth impact market
For those seeking to invest, sustainability has moved from the periphery – relegated to ‘do-gooders’ – to, rightfully, a core investment consideration. Research by bank, BNP Paribas found that 90% of global investors predict that more than 25% of their funds will support ESG projects by 2021. Investment in social housing by capital funds has great potential to support housing associations to tackle the housing crisis by increasing housing options beyond the private rented sector through maximising the affordable housing supply and providing social housing and routes into shared ownership.
Demonstrating resilience as well as readiness to transition to a sustainable and green economy is relevant for issuers across a number of industries and sectors. This means looking beyond the risks to new opportunities and revenue streams generated by green and socially beneficial products and services.
To a certain extent, the need for more comprehensive social impact scoring has been driven by the regulator. The Public Services (Social Value) Act 2012 in particular, saw some housing providers, as both bidders for contracts and procurement authorities, having to prove Value for Money (VFM) criteria. As such, it required housing providers to have business plans that are stress tested.
As of yet, there is no consensus or regulation of a framework for housing providers to follow to chase the market described above. One of the most important frameworks to emerge recently was the ESG Social Housing Working Group’s 48-point criteria, with metrics of social value that included resource management, the resident voice and affordability. Notably, there is also HACT’s Social Value Roadmap, which enables the social housing sector to use social value information to improve services, enhance decision-making and increase the impact that the sector makes. For international markets, ESG frameworks used commonly by financial markets and investors include, the GRI (Global Reporting Initiative and the IIRC (International Integrated Reporting Council).
In this environment, where each investor’s materiality factors differ and there are multiple frameworks available, we are working with our customers so that they can define their own characteristics that measure social impact. Our tools are user defined, enabling our customers to create their own factors and allocate scores within those characteristics in order to measure ESG within their organisation according to their own requirements or, if they choose, in step with emerging or existing frameworks.
Good data is key to sustainability reporting
According to the London Stock Exchange, a core priority to prepare an organisation for its ESG journey is the ability to provide “investment grade data.” This means that the data provided should be timely and accurate, allowing access to both normalised and raw data, as well as transparency around performance. This can build confidence and identify where improvements can be identified and their progress tracked.
For our customers, we take a multidisciplinary approach to assist them in developing systems for ESG reporting. At present, we are delivering the flexibility to load any individual or cycled costs into their own defined categories. We are building a robust point scoring system that takes into account the non-financial metrics and characteristics of social impact and sustainability – both internal and external – that evidences their rounded performance. And in the near future, you can expect to see technology from MRI Software that can assist in tracking the vast amount of energy consumption data across an organisation’s whole stock to accurately report emissions in real-time and influence decision-making.
Powerful modelling capabilities enable organisations to evaluate alternative scenarios based on varied inputs (including costs, income, scoring factors, inflation, discount rates, time periods, etc.); necessary to meet HCA requirements or give realistic predictions for the consequences that a carbon cutting initiative may have operatively or financially.
The Charter for Social Housing Residents has also accelerated the need for housing providers to harness their data; to identify what works, to track which activities are driving change over time and to build scenarios for future strategies that balance the costs and predict their social impact.
Social housing has always been seen as an ethical investment, because it’s housing. But that’s no longer good enough for ESG investors. Increasingly they’re answering more searching questions about what exactly your business does.
Mark Davie, Head of Social Housing, M&G
Social housing providers are by default, social actors. The services they provide impact individuals and communities, create jobs and generate savings across public services. At MRI Software, we are seeking further partnerships with housing providers to assess their strategic value beyond the bottom line and build with them systems to evidence this work to secure funding, be compliant to the regulator and build sustainable tenancies.