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Boards can avoid mistakes of the past with the sector’s ESG standard

Martin Hurst, chair of Shepherd’s Bush Housing and board member of SfH, explains why housing associations should look to the Sustainability Reporting Standard for consistent, reliable benchmarking

[Originally published on Housing Digital]

In 17 years on boards for small, medium and large housing associations perhaps the single most common issue for Non-Executive Directors in fulfilling their assurance role has been the lack of high-quality benchmarked management information.

I’ve lost count of the number of ‘KPI task and finish groups’ I’ve sat on and the number of discussions about the relationship between process metrics and ultimate strategic outcomes.

Time and again, despite high quality executives and a lot of thought, it has transpired that we have spent a lot of time measuring what turned out to be the wrong things or have measured the right thing but haven’t known what good looks like.

What is more, the things which external stakeholders – in particular lenders, auditors, grant givers and – I suspect increasingly – regulators – have looked for aren’t always the things which help run a business. 

It is clear that ESG is the fastest growing strategic issue on board agendas and to get to grips with it quickly, it will be important to secure a stream of consistent and comparable information – particularly on the environment/climate issues which are not in the skill set of many board members and senior executives.

It may be of some comfort to know that in my experience social housing is far from alone.

Energy and water utilities I work with have similar issues: in some cases, worse because equity owners often call the shots, and they want metrics which can, for example, be compared across infrastructure sectors – say gas, water, ports and airports – and in some cases across countries.

I have talked to senior executives who have been tearing their hair out about the number of different and unrelated returns they seem to be filling in, and the sheer distraction from the day job. 

This is one of the main reasons why I am so keen on the Sustainability Reporting Standard for Social Housing (SRS). Because it’s created by and for the sector, it is relevant to our sector. Because it draws on external expertise on climate for example, it is informed. Because it has critical mass of sector buy-in and adopting associations it can be benchmarked. Because it is updated on a regular cycle it remains both current and stretching. And because it is also coinvented with the lenders, it immediately eliminates much of the duplication of metrics which I refer to above – and in particular helps cut through some of the mist and obfuscation which surrounds the ESG ‘industry’.

But, and it’s a big but, an association which merely reports against the standard because it is easier than doing their own metrics and keeps the lenders happy is missing a big trick. The literature is full of the dangers of falling into a ‘compliance’ mentality. For me, at least, three other things are essential:

First, ESG reporting via the standard needs to clearly sit underneath, and hopefully inform, associations’ strategies. Good chairs are strategic leaders and good boards can relate all the decisions and trade-offs they need to make to the strategic objective of the organisation. Reporting against the standard can help, but it cannot substitute for clarity about strategy and purpose. The best utility companies, and despite recent press there are some, are clear about their public purpose and value, and use ESG and other metrics to track how they are doing against this.

Second, good reporting is integral to the work of audit and risk committees but is of itself not enough. Benchmarked reports can help identify areas of weakness and strength. But a good audit and risk committee will go further and use the standard to ask questions about risks and risk appetite.  

Third, and most importantly, as has been said ‘culture eats strategy for breakfast’. Where I have seen reporting such as the SRS be most effective is as a tool for helping change culture. To inform and listen to staff, in particular front line staff, and to change how the organisation works. Incidentally, about 20 years ago I did a short secondment to an oil and gas major working on a project to identify why CSR (remember that!) was important to the company – which wasn’t listed in the UK. The main reason was that it was a powerful attractor to young graduates and a strong tool to retain existing employees, which is even more true today.