[originally published on Social Housing]
The Sustainability Reporting Standard for Social Housing (SRS) has the potential to put social housing on a path to deliver decarbonisation and building improvements. Chris Yau of Lloyds Bank explains how the bank became an early adopter and why it is embracing the agenda.
Although the government has pledged £3.8bn through its Social Housing Decarbonisation Fund, reports estimate the social housing sector will require circa £50bn of new debt over the next five years to tackle decarbonisation and building improvements. As such, it is more important than ever that the sector can access finance that will address these needs.
What is the SRS?
The SRS sets out a framework for reporting performance against 42 environmental, social and governance (ESG) criteria. Formulated by a pan-industry consortium, and formally launched in November 2020, the SRS has helped to create a consistent and transparent framework of ESG reporting tailored to the key areas of importance to the sector.
The framework has enabled organisations to effectively communicate their sustainability performance and strategies to internal and external stakeholders, embedding the reporting disciplines that help shape decision-making and objective-setting.
Having completed the first year’s reporting cycle against the SRS, adopters have formulated their data baselines and are now turning to developing specific corporate objectives and targets aligned to these criteria.
The sector’s perspective
With nearly 100 adopters of the SRS, of which 61 are housing associations, the feedback from our social housing customers has been extremely encouraging. It has been good to hear that many associations, which have yet to adopt the SRS, have informally adopted the framework as a first step to establishing cross-departmental working parties and enhancing their internal reporting processes, while indicating their desire to formally adopt the SRS in the near term.
Clarity and strategy direction
As has been the case across the economy, there has been a fragmented approach to ESG responsibility and reporting by housing associations. This has led to a lack of clarity and strategic direction. Similarly, our customers reported that they lacked the resources required to develop the kind of ESG reporting we, and increasingly investors, were asking of them.
Consequently, a key benefit of the SRS is the standardisation of a reporting structure to facilitate ease of reporting, and the breakdown of internal silos, and the promotion of cross-departmental collaboration to create an ESG-driven culture.
Better investment decisions and access to finance
We have found that proactive housing associations understand the importance of communicating ESG strategy across their organisational purpose and corporate plans. They are voluntarily disclosing their ESG data publicly in the knowledge that funders are increasingly considering ESG issues to help support investment decisions.
As a major lender in the sector, we’ve executed a series of sustainability-linked loans (SLLs) over the past 12 months based on this increased clarity and transparency. For SLLs, borrowers are required to demonstrate the materiality of the chosen key performance indicators (KPIs) to the business, as well as articulating how the target levels being set are ambitious and beyond the normal course of business.
More than the numbers
As lenders to the sector, we have historically focused on financials. However, when it comes to ESG we now also place a significant value on the qualitative responses that are included within the SRS. The additional commentary and use of case studies helps provide the additional context for ESG performance as we are interested in the past delivery but also the wider roadmap on the journey to net zero carbon.
Other industries are also rapidly formulating a set of recognised criteria for communicating ESG performance.
Hill Group, the UK’s second-largest privately owned house builder, has recently used the NextGeneration sustainability framework to underpin the first major SLL in the house builder.
With parallels to the SRS, the NextGeneration sustainability benchmark aims to enhance ESG reporting and transparency across a range of criteria. The benchmark was developed in collaboration with the industry over the past 15 years, to further the sustainability agenda across the new build residential market. Lloyds Bank is an executive member of the NextGeneration Initiative, alongside Homes England and UK Green Buildings Council, with JLL as secretariat.
Since joining the NextGeneration benchmark, Hill Group increased its ranking from ninth to sixth place in the UK’s 25 largest house builders during its first year of membership. This demonstrates the power of data and information reporting, which are enablers of strategic objective-setting for organisations.
Interestingly, Clarion Housing Group’s development arm – Latimer – joined the NextGeneration benchmark in 2021 and is the first member from a housing association group to do so. There is no doubt there will be more interest from the social housing sector in future.
Across all the sectors we support, there is now a significant opportunity to harness the rising tide of interest in ESG and use it as a powerful tool to align the economy to the needs of society and the planet.
The SRS has a crucial role to play in the continued evolution of the sector for housing associations, investors and lenders alike.