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Q&A: David Averre, Head of Credit Analysis, Insight Investment Management

Insight Investment is a leading UK asset manager and one of the founding members of the social housing sector’s ESG standard, the Sustainability Reporting Standard for Social Housing (SRS). As a responsible investor, Insight puts long-term capital from pension fund and insurance companies to work via fixed income and liability-driven investment (LDI) strategies, which aligns neatly with the long-term nature of social housing. Social’s Luke Cross caught up with David Averre, who has been covering the social housing sector for around 15 years, to hear his views on ESG and social housing, the value of the SRS and the way Insight uses the Standard to support its investment decision-making.

Where does ESG figure in your investment decision-making?

We’ve been covering social housing for the last 15 years and it has changed immensely in that time – along with new challenges, it has also become more professional, better managed and better governed.

A big change for all of us during recent years is how we think about ESG issues. Instead of relying wholly on ESG ratings agencies, we have our own ratings which take a variety of third party information and data, and re-categorise it to try and reflect ESG risks in terms of what’s financially material. These ratings are there for our portfolio managers and analysts to use, and some of our mandates have specific restrictions in place that are tied into those ratings.

Many housing associations are not covered by third party providers due to size – I cover 45 different issuers and most don’t have these ratings. As a result, some asset managers started sending out surveys to fill in the gaps and derive a more meaningful view of ESG ratings and risks.
But a dozen surveys in different formats meant it became a headache for the housing associations. That is basically why the SRS was created – to provide a common format that we all want to see.

What role does the SRS play in your ESG analysis – and has it done what you hoped it would?

We spent a lot of time developing the SRS, along with other major funders, housing associations and others in the sector. Pleasingly, after establishing the first framework, or version 1.0, the adoption rate has been really good across the sector and v2.0 looks even better still.

When we receive the SRS disclosure, we don’t then need to go back out to issuers and run surveys on an ongoing basis.

I am seeing an increasing number of HAs adopt it and before I have a meeting with any of them I go to their ESG reports and it’s important for me to see that they’ve committed to the SRS. I look at the information in it and if there’s no rating for the HA already, we can derive a rating and keep it updated.

Really, this is just as we imagined the SRS would work – with housing associations providing information we asked for and the sector also being able to use that data to drive transparency, consistency and performance. Now with v2.0 and the data input tool, the SRS has become even more useful and of value to investors like us.

If we see a HA come to market and it doesn’t provide this information, it’s almost a non-starter for us

How important is it for you to see ESG disclosure – but also SRS reporting specifically?

It is really important, because ESG isn’t going to go away, particularly climate change and climate-related risk disclosure.

It’s now part of all corporate life and we are going to want to see progress – and the bar continues to be raised for all issuers.

I hope that the cost of capital is kept at a reasonable level as a result of providing this information -for example by demonstrating carbon emissions data, management and reduction and reporting regular progress against net zero plans, not just a target you want to reach by 2050.

If we see a HA come to market and it doesn’t provide this information, it’s almost a non-starter for us. We need this to construct client portfolios and we need to report back to them this information on a regular, ongoing basis – it’s not just a nice to have, it’s a necessity.

As a housing association, if you’re not reporting on this and providing the data that investors like us are looking for, I’d expect your cost of capital to rise over time, relative to the sector.

Can you expand on that cost of capital point – are we saying that the SRS can save housing associations money?

The key point is that we are looking for this ESG information. For various mandates we need certain information that our clients want, so this is about meeting the needs of our clients and their advisers. A big driver for that has been the emergence of regulations that require large pension funds and insurance companies to meet ESG reporting obligations.

If you’re not delivering on this information and can’t show you have a baseline, this puts you in a poor light and scares some of us investors away – it’s difficult to support something with these data gaps.

In some shape or form it feeds into the cost of capital.

Do you see ESG as being in the DNA of housing associations?

In many ways, yes – but there are ESG issues that require additional focus too.

If we take the ‘S’, housing associations do of course have a really strong social purpose. But as an example, within the ‘S’ bucket we would consider cyber security as a risk and there have been some high profile cases in the sector over the last year or so.

On the ‘G’ – when I started looking at the sector 15 years ago, governance was a huge focus for me since in many respects, the quality of a business really rests on management. But since then, regulation of the sector has improved massively, and management teams and governance models have become far more professional.

The ‘E’ is what was lacking. Housing has a significant part to play in the UK government’s net zero ambition – so it is a great way for the sector to say ‘here is what we’re doing on energy efficiency’. 

There are good and bad aspects of EPC as a measure, but as a near term target it is really useful, and I think there’s a great story to tell – the average medium EPC rating of the housing association sector is a full notch above the housing stock across Britain. Overall we are seeing housing associations do a good job. The Fabric First approach is a big opportunity, and the next step is the roll out of air source heat pumps and solar panels.

Overall we would expect social housing to be in a better place than the private rented sector.

Where do you feel housing associations can improve in terms of SRS disclosure?

I often use ESG to frame the questions I ask as this can help to uncover meaningful information. We want to know, for example, how housing associations are handling damp and mould issues. That has been a particular area of focus.

By our nature, we like focusing on figures and stats, maybe that’s why there is the focus on scope 1, 2 and 3 greenhouse gas emissions, and carbon intensity. There are still gaps to be closed on this criteria around consistency and how it is measured, and sometimes prior year numbers change without commentary, so it would be good to have the commentary on that to explain what’s happened.

We also ask whether there should be more interim targets, so you can show your progress towards 2050 and how you are thinking about benchmarking and testing yourself.

Generally when meeting companies, we know that every company will have a story they want to tell – and part of our role is to listen to it, understand it, but maybe pick away bits of it too.

I absolutely appreciate that some find the level of disclosure difficult but that’s the world we live in – asset managers struggle with similar issues, this is happening across the board.

Where do you think the sector, and its funders, would be without the SRS?

I think they would be reporting this stuff but in a variety of formats, making it extremely difficult to get to the nub of the information.

I know some housing associations have been reluctant but most have got on board – there are maybe one or two providers who think they’re a bit different and want to do their own thing, and I keep saying please support it, and make all our lives easier! We want this to be a frictionless process, to make it easier for both sides – and it’s also about what’s good for the wider sector.

I absolutely appreciate that some find the level of disclosure difficult but that’s the world we live in – asset managers struggle with similar issues, this is happening across the board.

What would you say to anyone who is still exploring whether to adopt the SRS?

If you’re on the fence or you haven’t started, I appreciate it will require resource; time, money and people – but the thinking that goes into the reporting process will help you internally too. It gets you thinking culturally about it.

We value it highly and in all honesty, this approach is here to stay, so it’s best to start now.